An Inconvenient Truth

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A good article to think about what we, as a nation want. While France has gone down the road that many Singaporeans had wished Singapore for, look where it has led itself to? Not to forget France is a much more resource rich country.

Excerpts :

• The French have had a security wake-up call. But when it comes to the dangers facing their economy, they are still dozing

• The awkward truth is that France, the second-biggest economy in the euro zone after Germany, faces a public-finance squeeze………For years France has offered its people a Swedish-style social model of services, benefits and protection, but has failed to create enough wealth to pay for it..

• Today France continues to behave as if it enjoyed Sweden’s or Germany’s public finances, when in truth they are closer to those of Spain

• The underlying problem is that, over the past ten years, France has lost competitiveness. ……,An employer today pays twice as much in social charges in France as he does in Germany. France’s unemployment rate is 10% next to 5.8% in Germany—and has not dipped below 7% for nearly 30 years.

• This erosion of French competitiveness raises hard questions about the underlying social compact. Frenchmen cherish the notion that everyone has an equal right to decent services in good times and a generous safety net in bad. But what sort of level of support, in sickness, joblessness, infancy or old age, can France really afford to offer its citizens?…… How can France lighten the tax burden, including payroll social charges, so as to encourage entrepreneurship and job creation?

• Put simply, France is about to face the tough choices that Gerhard Schröder, Germany’s former chancellor, confronted in the early 2000s or that Sweden did in the mid-1990s, when its own unsustainable social system collapsed…… If he (whoever is elected ) fails to be tough enough on the deficit, markets will react badly, and France could find itself at the centre of a new euro-zone financing crisis. If he tackles the deficit with tax increases across the board and even spending cuts, voters will not be remotely prepared for it.

• Both presidential front-runners instead rely heavily on balancing the books through tax increases. Mr Sarkozy has already raised corporate and income tax. He now says he wants to tax even those who leave France for tax reasons…….

• The French live with this national contradiction—enjoying the wealth and jobs that global companies have brought, while denouncing the system that created them—because the governing elite and the media convince them that they are victims of global markets. ..

• So it is with today’s election. Rather than confronting these attitudes, and shaking the French out of their comfort zone, the two front-runners are pandering to popular reflexes…… Apparently without irony, the son of a Hungarian immigrant started to tread on nasty ground, with talk of “too many foreigners” in France. All this is meant to reassure fretful French voters, who think Europe is failing to protect them from global competition.

• …. the politician who once wrote disapprovingly that France “has never stopped discouraging initiative and punishing success” has now raised taxes on the rich, and bashes big bosses and bankers at every turn.

• The 75% tax rate, says Olivier Ferrand, head of Terra Nova, a Socialist-linked think-tank, is “just a symbolic measure”: even Mr Hollande has conceded that it will bring in little revenue, if any.

• There is a serious risk of disappointment if, for example, President Hollande were to say upon taking office: “We have examined the public accounts and, quel dommage, there is no money for anything I promised after all.

• All of which leaves voters with the unenviable task of deciphering which part of each candidate’s message is credible, and which part pure fantasy. The best guess is that both front-runners, for their own political security, would need to put in place a couple of the barmier ideas. This could be damaging enough. In 2007, after equally tough talk about immigration, Mr Sarkozy went ahead and set up a ministry of national identity—only to abolish it later on, having caused much offence along the way. Were a President Hollande to implement his 75% tax rate—just when Britain has cut its top rate from 50% to 45%—it would send an untimely message abroad about the way France treats financial success, much as the 35-hour week tarnished the country’s image for years. His overall tax policy would tell aspiring French entrepreneurs that they might be better off launching a good idea elsewhere.

 
The French election  
Link : The Economist An inconvenient truth