France Unveils A 'Growth-Killer' Budget For 2013

Tyler Durden's picture

Following closely on the heels of Spain's budget and banking audit debacle, France prepares to unveil its budget (taxing business, bankers, and beer). The positive spin will be deafening as politicians are already proclaiming 'realistic and ambitious' growth targets as getting the country 'back on the rails'. UnMondeLibre's Emmanuel Martin comments "How ironic? The French Presidential candidate who once campaigned with the slogan of 'growth vs. austerity' is now, as President, preparing to give the French the biggest taxation shock ever – a growth killer that is." What matters is the type of path to fiscal responsibility, and, unfortunately, Mr Hollande chose 'austerity with more taxes and no reform'. With France being a crucial player in the Euro-game, one wonders whether this might actually not mean the end of the Euro sooner.


Via Emmanuel Martin of Un Monde Libre,

France: A Growth-Killer Budget for 2013

How ironic. The French Presidential candidate who once campaigned with the slogan of “growth vs. austerity” is now, as President, preparing to give the French the biggest taxation shock ever – a growth killer that is.


France’s 2013 budget has been unveiled Friday and it is the “most important rigor effort in 30 years” according to… Mr. Hollande himself. Following his predecessor’s defense of the “golden rule”, the socialist President intends to reduce the deficit at 3% next year (vs. 4,5% in 2012) in order not to be “in the hand of markets”.


Of course market investors may be happy with the apparent “seriousness” of the socialist President. Of course Germany may be pleased to see that “Flamby” has finally come back to “reality” after his electoral pledges.


Except that reducing deficits is not the key to France’s problem per se: it depends on how the government performs it. Hence, behind the rhetoric of a “courageous, responsible” budget, or even a “budget of conquest”, the reality is that this budget is essentially based on tax increases (€24bn) – not spending cuts (€10bn). In a country with more than 56% of GDP in public spending and a public debt exploding at now nearly 90% of GDP,  a “responsible” government was expected to initiate a serious effort in terms of reforms to reduce the level of public spending first.


Yet, total tax pressure will rise from 44,9 to 46,3% of GDP whilst government spending will be “stabilized” at 56,3% of GDP. The revenues from income tax should rise by 25% (from €59bn to €73bn). A new income tax bracket is created above €150,000 with a 45% marginal taxation rate, with of course the famous 75% rate for incomes (from work only) above €1Mn. This steeper progressivity is not a good recipe for incentives to invest and create. A group of entrepreneurs called “the pigeon” (the pigeon means someone who pays for everyone - but that bird can also fly) has already planned demonstrations on October 7. Corporate tax revenues should increase by 30% at €52bn (especially from reductions in tax deductions in big companies). One hardly sees how France’s issues of high unemployment (that recently reached 10%) and lack of competitiveness due to high labor – social – costs will be helped by such policy (especially after the government last summer chose to reduce the retirement age to 60 for those who started to work at 18 – which is costly, and increased the national minimum wage).


Today the government maintains that most of the tax effort will be borne by rich households and big companies. This sounds like a “class struggle” vision, even if one now knows that to hit the rich is, in the end, to hit the poor - either because the rich will invest less or elsewhere. But, in fact, it turns out that, according to a Tax Administration Union, 16 million tax households (out of 36 million) will be hurt by income tax increase, given the freezing of the tax schedule. The cap of the tax reduction share per child is reduced from €2,300 to €2,000, which will hurt middle class families who pay income tax. The new taxation of capital gains and savings will penalize poor and middle class savers. Moreover, one measure taken this summer by the government has already reduced the purchasing power of the “workers”: the suppression of the non-taxation of overtime hours.


Government payroll is “frozen” at €80bn – not reduced. Even the budget cut of the “non-essential” Ministry of Culture is small (from €2,54bn to 2,43bn - a mere €110M… difference). Yes, 12,300 jobs will be suppressed in the various government departments. But 11,000 new public jobs will be created, and that’s on top of the nearly 6,800 already created this summer. The rule of non-replacement of retiring civil servants introduced by Mr Sarkozy was suppressed. Even when it is claimed that the government programs will be cut back (but the Prime Minister Jean-Marc Ayrault did not mention any during a TV show Thursday night), it’s hard to see where the €10bn will be found.


A recent NBER study by Alberto Alesina, Carlo Favero and Francesco Giavazzi finds that fiscal adjustments focused on spending are “associated with mild and short-lived recessions, in many cases with no recession at all” whilst “tax-based adjustments” are associated with “prolonged and deep recessions.” It’s high time that France seriously rationalizes its administration (by suppressing layers in its decentralized system, for eg. the Département – a layer of local government) and reduces its public spending. Mr Sarkozy was no doubt a big spender, and under his government debt increased by about 30% (which weakens the criticisms of the opposition today) but the effort to rationalize public spending was launched five years ago with the Revue générale des politiques publiques (a sort of cost-benefit analysis of France’s public policies to reform the government) and it was a good start. This new government seems to have dumped it.


Finally, let’s mention the – usual – optimistic assumption about growth next year. The government started with a 1.2% forecast, and then chose 0.8% for this 2013 budget. But economists predict 0.3%. The difference is not minor as 0,1% equals €1bn. As it’s obvious that such taxation shock will shrink the economy, one can only be stunned by the government growth forecasts for the next years : 2% !


After nearly forty years of budgets in deficit, France’s finally turning towards fiscal responsibility could have sounded like good news. But what matters is the type of path to fiscal responsibility, and, unfortunately, Mr Hollande chose “austerity with more taxes and no reform”. With France being a crucial player in the Euro-game, one wonders whether this might actually not mean the end of the Euro soon.


And Deutsche Bank's Summary of the State of France:

France: Exhausted model


France has been defying gravity with three quarters in a row of stagnating GDP. However, we expect outright recession in H2 2012, with two quarters of GDP contraction, followed by only subdued recovery. Indeed, domestic demand is faced with two headwinds: wage austerity and fiscal retrenchment, while exports are hit by the slowdown in external demand. France’s economic model since the beginning of monetary union, where productivity gains are channeled to real wages growth and consumer spending, has touched its limits.


In Q1 2012 the share of wages in corporate gross value added climbed to 68.5%, highest level since 1986. Symmetrically, aggregate corporate profitability has fallen back to 13.0%, second lowest since 1986. This suggests that the current bout of wage austerity – real wage growth has been negative since Q4 2010 needs to continue. While it did not collapse, as it did in the periphery, consumer spending no longer is a growth engine in France, where it now stands at only 1.6% above its pre-recession level in 2008, underperforming Germany (+3.8%). We do not expect any reversal of this trend over the forecasting horizon.



Two third of the discretionary fiscal adjustment for 2013 (1.5% of GDP in total) will come from higher taxes. While this is a textbook approach when consolidating amid adverse cyclical conditions, this won’t boost potential GDP in a country where the tax burden stood at 43.7% in 2011 against 39.5% in the Euro area. A significant share of the tax hikes will affect corporations, in particular the removal of full deductibility of interest paid on debt, as well as the limits to the capacity to offset domestic profits with losses in foreign subsidiaries. This will add to the current deterioration in the corporate sector’s financial position, which in turn will exacerbate wage austerity and depress capital expenditure, which so far held up relatively well (the investment ratio of the corporate sector in early 2012 was still nearly 2 points above its long term average).


We consider that the official growth forecast for 2013 (+0.8%) is optimistic. Consequently, in spite of a commendable discretionary effort, we think that France is unlikely to meet its target for the deficit in 2013 at 3.0% of GDP. Looking ahead, the speed of the recovery in 2014 will depend on the government’s capacity to impose structural reforms, notably on the labour market. Official communication hints at such efforts, but very little has been spelt out so far.

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jeff314's picture

Vive la France...bande de connards



and fuck you Bernanke

Eireann go Brach's picture

All together now..FUCK The FRENCH!

economics9698's picture

The best thing about France is every few decades the Germans cross the border and kill them.

Floodmaster's picture

You need attention Little Angry Troll ? You feel like nobody love you? Poor thing.

azzhatter's picture

Can't get the song "The Taxman" out of my head

Harbanger's picture

The french need to raise taxes to at least 76%.

economics9698's picture

 Just in time for the start of the next recession.  

Raising the white flag. 

What would you expect from a nation that has sex using their face?


falak pema's picture

welcome to facebook à la française! 

Zola's picture

In France they will soon be handing out FREE OBAMA PHONES !! Yeah !! And maybe some free Hollandaise sauce ...

orangegeek's picture

France is a great country.


There's only one problem with it.  The French.

Beam Me Up Scotty's picture

Don't trash talk the French. They invented French toast.

ElvisDog's picture

And the French make excellent french fries.

i-dog's picture

Another dumb fucking sheep ... that can't tell the difference between the people and the government over which the very deliberately brainwashed people have no control.

ZeroAvatar's picture

Austerity?  Belt-tightening?  Living within your means? 



ebworthen's picture

This is what you get when so called conservatives collude with liberals to bail out the bankers and screw the people.

Of course the wealthy are the only ones who can truly afford to hide their wealth.

Hollande will find himself sucking empty eggs and the people will suffer.

JustObserving's picture

Gaddafi was killed by French secret serviceman on orders of Nicolas Sarkozy


A French secret serviceman acting on the express orders of Nicolas Sarkozy is suspected of murdering Colonel Gaddafi, it was sensationally claimed today.

He is said to have infiltrated a violent mob mutilating the captured Libyan dictator last year and shot him in the head.

The motive, according to well-placed sources in the North African country, was to stop Gaddafi being interrogated about his highly suspicious links with Sarkozy, who was President of France at the time.


Sarkozy, who once welcomed Gaddafi as a 'brother leader' during a state visit to Paris, was said to have received millions from the Libyan despot to fund his election campaign in 2007.



falak pema's picture

This is very similar to the Bush vendetta against Saddam which resulted in his demise in 2003 war in similar fashion. 

Remember, just like Q-daffy, Saddam had been spear carrier for west in Iran war, and then turned "rogue" as perceived by Bush Snr who punished him in 1991. He survived that, but GWB pulled the plug on him in WMD false flag in 2003 invasion.

Sarko was on the same ideological page as GWB. He felt that Q-daffy was a "traitor" to their friendship links, that Blair and Sarko had epitomised in interim period;  as the West had forgiven him his sins of Lockerbee criminal terrorist caper days. 

When political opportunism and strategic "western civilization" interests coincide...its called "reason of state". Its the same jargon all over the world, since time immemorial.  

A Lunatic's picture

Well at least they have a budget proposal. All we have is growth killer.........

Offthebeach's picture

Talk like that could get you a ride in the trunk of a Harry Reid driven Toronado to a awaiting pit in the Nevada desert.

nmewn's picture

Plus one Lunatic...O'Barry has presented a few, its just that they ALL get laughed off the floor of both Houses of Congress.

foxmuldar's picture

Yep, even his own party won't give him one vote for his budget. And when Obama had both houses for two years he still couldn't get a budget passed. But then if you don't have a budget, you can keep spending as much as you want, and isn't that what Obama's been doing? No budget to keep down the spending and food stamps cost a lot more then most think. 

nmewn's picture

"But then if you don't have a budget, you can keep spending as much as you want..."

That is the key.

Everyone knows where my politics are...but the one thing they never observe is my life long concern for the growth of the state itself. Right or left, it has to be brought back under the control of the people.

I can't remember who first said it (I believe it was Jefferson)...that the first act of government IS self perpetuation...meaning government itself, which is natural of course.

Well, so it is natural to Us. The People. Government is needed in my view but never this much.

Too much government becomes...don't say this or that and you won't be penalized for living, do this or that and you will be rewarded for merely living.

That ain't "living"...thats existing under its dictates...which I have always rebelled against and always will...which to me is, quite natural ;-)

in4mayshun's picture

All of these traitorous governments know the end is coming. They're going to steal all they can before the grand reset comes. I expect no less in the US.

Jack Burton's picture

I am sure the rich of France will find a way to escape taxation. Tax codes are written to present a fiction of the rich paying heavy taxes while the small print in the code ensures a good tax lawyer can prepare a rich taxpayers returns so that he pays a smaller percentage than the lady who cleans his house.

Complaining about how badly they are treated while all evidence shows they are getting most all the income gains is the hallmark of the elites. Even ZH crys for the poor suffering souls. As if they really pay these high tax rates. As if most of the rich's income doesn't come from capital gains instead of inventing things opening factories and hiring people or whatever wealth creation they may engage in. Most elites are not engaged in job creation, quite the contrary, they are engaged in wwealth extraction. Like bankers, hedge funders and speculators. Plus all monetary policy is designed to increase their wealth, central banks print in order to juice the assets they own.

Meanwhile the big lie that the rich are suffering horribly seems to even be in vouge on ZH. Do you seriously believe the rich are suffering? If so, why does income growth go all to them, why does their percentage of the wealth grow and grow and grow? Why do central banks work to juice their equity holdings. Why are capital gains taxed way below wage earning?

Seriously, give it up! I don't buy this hoax of the poor rich being beaten up by the 99%. That simply flys in the face of fact, it flys in the face of demonstable fact. It is quite simply a lie. And to be blunt, it is a load of Bullshit.

foxmuldar's picture

Hey Jack or is it Jill looking at your photo? Shouldn't you be out under some tent near wallstreet now smoking some dope and bitching about all those rich folks that fucked up your life? I don't know many poor folks that are hiring today. 

dougngen's picture

Cant say I disagree with your premise but I think ZH undersands that the "rich" will pay the higher taxes. They are the spenders and job creators. The ones you speak of are the elites; your quite right, they will continue to pay nothing. The problem is that the simply rich (not elite) are a major engine of the economy. Their class warfare strategies only hasten the bancruptcy and generate additional animosity as the hardships deepen.

Just consider the Laffer curve

ZeroAvatar's picture

JB, you get around!  Saw one 'o your comments on a Sur. Blog. link....(not to mention MS).  Good evening to you, sir!

Thisson's picture

The solution is to lower the income tax rate for normal wage-earners so that it's as low as the capital gains rate.  There should not be a preference for one source of income over another.

The rich need to take their lumps, but it should not be in the form of higher income taxes.  It should be in the form of capital losses on their bad debt.  And I agree with you that the Fed should not be juicing asset values, but Government spending is out of control and we need to cut the size of Government by at least 50% (and probably more like 80%) in order to get this economy back into balance.

Yen Cross's picture

 Cheap used " Mega Yachts" for sale. Inquire @ Nicaea civitas, offices.

q99x2's picture

Nothing is left except Global Insurrection Against Bankster Occupation.

Seer's picture

There's that false premise again, perpetual growth on a finite planet.

I don't give a flying fuck if you're PRO govt or PRO business (or anti either/both), if you spout off "growth" as the salvation you're a dumb mother fucker who is but perpetuating a fucking myth.

Jack Burton's picture

Indeed, the growth for ever myth is still an article of faith. Look at the panic about Japan where population is set to decline. Full blown PANIC!

No growth, the world will end! No, the world will not end. Older people will work longer and contribute to society longer. Kids will be highly valued by all. The country will have more room, more wilderness, more resources, more space, more of everything of value. Just because a certain branch of economci theory can't see beyond growth and especially population growth doesn't mean decreasing population is bad.

I thought capitalism was the perfect system, that it adapts everything by the miracle of the marketplace. You mean to tell me that the great market can't adapt to a population decline over a couple generations?

Dr. Engali's picture

Can you point me to a country that has free market capitalism? Anywhere?..... I didn't think so.

Seer's picture

I suppose that this question could be used to demonstrate that it could NEVER work/happen.  It is theoretical, and while it might make for great bedtime reading, expecting something to work in a non-corrupt way at the hands of humans is, well, what's that word? HUBRIS!

Besides, capitalism is all about growth.  Best looking horse and all that...

Harbanger's picture

Once you get on that socialist path (We did in 1913) it's utopia or bust.  And don't think bust isn't part of a bigger scheme for global Utopia.

Offthebeach's picture

Teddy Roosevelt ran on the "Fair Deal" a chicken in every pot.
The Pilgrams were socialistic their first couple of failing about years.
Aristotle said
"...“What belongs in common to the most people is accorded the least care: they take thought for their own things above all, and less about things in common, or only so much as falls to each individually.”

So, socialist loserism is as old as dirt.

Thisson's picture

Old people will work until they no longer can, because they won't be able to afford retirement.  They will also have shorter life expectancies because societies won't spend unlimited resources prolonging the lives of those who aren't producing more than what they consume.


nmewn's picture

Mr. Francois 'Gauche Caviar'

So, has he disposed of his swank Paris apartment and his villa over in Cannes as he proposes this new income tax bracket above €150,000 (on wage earners) with a 45% tax rate to show solidariteee' with the common man?

Progressivity bitchez.

Dr. Engali's picture

Do you think anybody in the media will point that fact out?

Hypocricy bitchez!

nmewn's picture

I sit here in complete amazement just shaking my head sometimes Doc.

Urban Redneck's picture

Mittens could announce he is thinking of taking up French citizenship to take advantage of all their tax loopholes for millionaires, esp. on unearned and foreign source income.

lolmao500's picture

And this asshole Hollande wants a war on Syria and Iran to please his Israeli masters... good luck with your BS 2% growth.

Jack Burton's picture

Yes, as if France does not have enough of it's own problems! It wants to spend money and lives to fight Syria and Iran to serve it's Israeli masters.

Imagine, even France is a slave to what the Israeli leaders demand! France can't get out there and bomb and kill fast enough when Israel makes it's demands. I'de like to know WHY the French have to serve aa Israeli nation as if they were slaves?