French President-elect, François Hollande, is right when he says that the EU fiscal pact needs to include measures to promote economic growth, but he is wrong about everything else.
Apart from his intention to renegotiate the terms of the EU fiscal pact, an area in which he has already run into resistance, Mr Hollande’s policies include:
- Raising tax rates to 75% on anyone making over €1 million.
- The introduction of an exit tax for anyone planning to leave the country.
Which he seems to believe will pay for:
- Raising the minimum wage from €1,400 to €2,000.
- Increasing the size of government to 60% of the economy.
- Lowering the retirement age from 62 to 60 for some workers.
- Adding 60,000 teachers.
It all sounds great but I’m reminded of Margaret Thatcher’s famous quote: “The problem with socialism is that eventually you run out of other people’s money” and that’s the problem. Mr Hollande’s 75% tax rate would only affect about 3,000 people and would therefore only generate around €200 to €300 million a year. It seems likely then that taxes will also increase for middle-income earners, and that the national debt will increase even more rapidly.
The 57-year-old socialist has openly admitted that he “does not like the rich” and that his “real enemy is the world of finance”, and the reality is that these tax-and-spend policies could prove disastrous for France.
According to the McKinsey Global Institute, France’s total debt to GDP is 346%, the fourth highest among the ten largest developed economies behind Japan, the UK and Spain. This total debt figure, which includes all the loans and the fixed-income securities of households, corporations, financial institutions, and government, is also growing rapidly.
Since the start of the global financial crisis in 2008 France’s debt to GDP has risen 35%, and without the support of the global bond market France could quickly find itself among the ranks of the PIIG countries.