Welfare ‘binge’ is driving France to financial ruin: a wealth tax is not the answer

The decision to throw out François Bayrou in early September was akin to the Assemblée nationale writing a suicide note on behalf of France’s economy. 

Mr Bayrou had told France’s legislature that the country was living far beyond its means, and needed €44billion in cuts to ward off bankruptcy. 

Only the 364 MPs who voted to bring down Mr Bayrou (by a sizeable majority: only 194 supported him) knows why he or she chose to do it. 

Some, mainly on the left and hard left, may seriously believe that the welfare binge wrecking the French economy must go on, and that there will always be rich people and corporations to pay for it. 

Others, such as Rassemblement National, may have done it for cynical reasons of ambition – if the RN is ‘right wing’, it appears to understand nothing about so-called right-wing economics. 

Objectively, rejecting the Bayrou programme looks insane.

The average worker now earns less than the average non-worker because of the huge taxation required to pay for the destabilising extravagance of the French welfare state.

Mr Bayrou genuinely wanted to point the way forward for his country, and has paid the price for the ostrich-like attitude of 364 of his fellow legislators. 

What happens next?

This invites a new question: how long can Mr Bayrou’s successor, Sébastien Lecornu, survive in office if he refuses to confront the reality of France’s economic situation? 

At the moment, it is touch and go whether France or Britain will be the first to reach the level of financial crisis that requires it to call in help from the International Monetary Fund: close though it may be, France now appears to be just in the lead.

Mr Lecornu is considering revisiting a suggestion first made last year – the idea of the left-wing French economist Gabriel Zucman, now based in America, of a wealth tax on the richest people in France. 

The last French wealth tax was a disaster and raised virtually no money at all: very rich people are good at avoiding such things, even at the cost of uprooting themselves and going to live somewhere else, which is the problem. 

Nonetheless, Mr Lecornu is in talks with the socialists about considering such a thing, because he needs their help if he is to stay in office, and they have swallowed Mr Zucman’s belief that implementing the tax he suggests would raise much of the money France needs to start balancing the books – around €20 billion a year.

Mr Zucman’s contention is this: that the richest people in France – those with a net wealth of more than €100million, who do not already annually pay the equivalent of 2% of their wealth in taxes, should be made to pay more until they do so: so a billionaire would have to prove he or she was paying at least €20million in tax each year. 

It is estimated that this would affect 18,000 French households, or a mere 0.01% of those in the country.

Given that 99.99% of households would be unaffected, it might seem easy for Mr Lecornu to put more money in the state’s coffers and to buy support in the Assemblée nationale while upsetting hardly any voters. 

The problem is, however, that the voters they would upset are those whose wealth France desperately cannot afford to lose. 

Wealth tax

Polls show that 74% of French people would be happy for a wealth tax to be levied; it is highly unlikely that this considerable number includes anyone who would be affected by such a tax.

The Zucman tax would undoubtedly drive a number of rich French people out of the country, even if only over the border into Switzerland. 

They would take their purchasing power with them; the loss of their wealth to France would not only result in less tax being paid, but it would also close down jobs and impoverish businesses and individuals who depend on those very rich people for their livelihoods. 

It is hard to think of an economy in the developed world where a wealth tax has worked: even the British Labour government, in desperate straits, has refused to consider it. 

Such a tax is not an easy option. Given his own right-of-centre political heritage, Mr Lecornu must see that. 

If he buries his principles and goes along with it to stay in office, he will be driving yet another handful of nails into France’s economic coffin – which needs relatively few more before it goes underground.

A former official in the Macron administration, Antoine Foucher, has also pointed out how little incentive there is for French people to work: for every €100 they earn, they may get to keep only €54 after tax and other contributions. 

As a result, he argues, for the first time since 1945, work no longer improves living standards.

So it is not just that the rich may vote with their feet: the masses in work may refuse to create more desperately-needed wealth for France because it is not worth their while.

This is becoming an existential question not just for Mr Macron, but for the way France is governed under the Fifth Republic. 

If Mr Lecornu cannot appease the lunatic left in France – who seem to regard its grotesquely generous welfare state as more important than the prospect of bankruptcy – Mr Macron is likely to have to call yet more parliamentary elections. 

They could leave him with an Assemblée nationale so divided that the country becomes even less governable than it is now, which could mean the end of the Fifth Republic and a whole new constitution. 

And if things reach that pass, how on earth could Mr Macron justify staying in office? It would be the ultimate proof not of the failure of yet another prime minister, but of the president himself.

Do you think France's social model can survive the ongoing political crisis? Let us know at letters@connexionfrance.com