What can Americans learn from the French presidential election? Certainly that France seems to be experiencing the politics of denial. A vote for François Hollande is a vote for fiscal denial. Look at the above chart (viaChartingTheEconomy.com).
With debt near 90% of GDP, France needs to sharply reduce the size and scope of government. What’s more, a 2010 ECB study found that overall, the EU is about maxed out when it comes to taxes: “More precisely, we find that the US can increase tax revenues by 30% by raising labor taxes but only 6% by raising capital income taxes, while the same numbers for EU-14 are 8% and 1% respectively.”
And that’s for the EU overall. France itself might well be on the wrong side of the Laffer Curve.
Yet here is the Hollande economic platform, as outlined by Morgan Stanley:
Fiscal consolidation is also a priority for the Socialist Party’s candidate, with a deficit target of 3% of GDP in 2013 and a balanced budget by 2017. Meanwhile, the new measures unveiled during the campaign would cost €20bn. These new measures and the overall fiscal effort would be funded by cuts in tax loopholes and an increase in taxes for the wealthiest households and large corporates. A broad fiscal reform would complement the adjustment of public finances. Financial institutions would be subject to several regulatory measures and taxes. In addition, some of the policies that have been implemented by the current government over the last few years would be repealed, which should increase fiscal revenue by €29bn, according to the Socialist Party’s fiscal plan. On the whole, the tax burden would increase by 1.8 percentage points, while general government spending as a ratio of GDP would decline by 2.6 percentage points.
So Holland’s 4.8% of GDP austerity plan is 40% taxes and 60% spending cuts. Nicolas Sarkozy, on the other hand, has a 5% tightening plan, 25% taxes, 75% spending cuts. A bit more like it. Really, of course, France needs to be cutting taxes and radically restructuring government.
General government spending as a share of GDP, Morgan Stanley Olivier Bizimana notes, has considerably increased over the last three decades, to 56.6% of GDP in 2010, from 46% in 1980. What’s more, the average tax burden for OECD countries was at 33.8% of GDP in 2009, almost 10 percentage points lower than in France. Indeed, says Bizimana,”the high level of tax burden, especially relative to other developed countries, suggests little scope to increase revenue in France.”
Would a vote for Barack Obama also be a vote for fiscal denial? Well, consider the following: