Global Insight

January 8, 2013 6:29 pm

Hollande mired in taxation policy paradox

Mixed signals from Paris on reforms exasperate critics

There was a distinct sense of anticlimax in Paris on Tuesday, after a week in which Gérard Depardieu had led a media circus over his bizarre tax exile to Russia, when the film star failed to appear in person to answer a court charge of being drunk in charge of his scooter on the streets of the capital last year.

But President François Hollande must surely have been relieved that the brouhaha over the eccentric Mr Depardieu, granted a Russian passport by President Vladimir Putin amid great fanfare in Russia at the weekend, at last showed signs of simmering down.

The episode has become an embarrassing international symbol of Mr Hollande’s tax-the-rich policy at a moment when he is trying to persuade his European partners and the international business community that his Socialist government is committed to business-friendly reforms of France’s sclerotic economy.

In an indication of how France’s fellow European governments are puzzling over what is going on in Paris, Gunnar Lund, the Swedish ambassador, posted a tweet prompted by the Depardieu affair – and the equally bizarre declaration by 1960s sex symbol Brigitte Bardot that she too was minded to seek Russian citizenship, albeit not for tax reasons.

“The life of an ambassador more and more difficult: how to interpret for my employer the political significance of Depardieu/Bardot. Help!” wrote Mr Lund on the microblogging website.

The problem is how to reconcile Mr Hollande’s sharp increase in the tax regime – income, wealth and capital gains taxes have all risen, with the wealthy heavily targeted – with his government’s parallel insistence that it is building a “new French model” in which, in the words of prime minister Jean-Marc Ayrault, “France must be more open to risk-taking, social and economic innovation and the creation of enterprises as much as artistic creation.”

The paradoxes and ambiguity are striking, neatly embodied by the figure of Arnaud Montebourg, the fiery industry minister.

In November, Mr Montebourg caused uproar when he fiercely attacked Lakshmi Mittal, the steel magnate, over ArcelorMittal’s plans to close two blast furnaces in France, saying the company was no longer welcome in the country and threatening to nationalise the plant concerned. Yet Mr Montebourg is in charge of France’s inward investment programme, leading a new campaign entitled: “Say Oui to France”.

The minister hosted a lunch on Tuesday for the Anglo American Press Association in Paris in a bid to rebuff what he called unwarranted “French bashing” over the government’s tax and other policies.

“I want to fight against the caricature,” he said. “They say I’m left of the left. I think you are making a mistake.”

He reeled off a series of facts about France’s leading position in Europe in attracting foreign industrial investment, insisting that the overall cost of investing in the country – despite notoriously high social charges on labour – were “extremely competitive, better than Japan, Australia, the US and Italy”.

Mr Montebourg let rip with one of his customary attacks on free trade – he has been a longtime critic of the effects of globalisation. But he sought to set French policy firmly in line with the US, saying the government backed a policy of “re-shoring” industrial jobs “like that conceived by [President Barack] Obama”.

He praised the “Buy America Act” favouring local US contractors in public sector contracts. And he evoked Franklin Roosevelt to defend the government’s tax policy, saying the Depression-era president had raised marginal income taxes to 91 per cent – well above Mr Hollande’s proposed 75 per cent rate which has attracted so much opprobrium.

Mr Hollande himself was pleading the case on Tuesday that his government will undertake structural reforms, telling senior civil servants that it will conduct a “profound evaluation” this year of the country’s bloated public services to achieve “tenacious and determined” cuts in spending.

The president’s critics, however, are exasperated by what they see as a disconnect between these public commitments and the reality of policies such as the high tax regime. Ministers themselves keep sending mixed signals, talking up their moderate, reformist credentials one day, then protesting that they make up Europe’s most leftwing government the next when confronted with disquiet from the left.

It is an ambiguity that Mr Hollande is under growing pressure to resolve.

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