The Only Thing Austere about France's Budget Is Taxes
Elected amid a wave of anti-austerity sentiment, French President François Hollande promised to reverse the course of former President Sarkozy’s allegedly draconian spending cuts. A look at the data shows that there was very little that is austere about France's recent spending and a large number of tax increases under both Sarkozy and Hollande.
Elected amid a wave of anti-austerity sentiment, French President François Hollande promised to reverse the course of former President Sarkozy’s allegedly draconian spending cuts. A look at the data shows that there is very little that is austere about France's recent spending and a large number of tax increases under both Sarkozy and Hollande.
This week’s chart and table use data from the European Commission’s Eurostat database to highlight the French fiscal situation between 2007 and 2012. These charts display total government spending and revenues in France nominally and as a percentage of GDP. The accompanying tables break down fiscal policy changes during this period.
In 2012, French public spending reached 56.6 percent of GDP, up from 52.6 percent in 2007. Nominal government expenditures likewise jumped 13 percent, from $1.370 trillion in 2007 to $1.588 trillion in 2012. The table below outlines the various policies that boosted government spending during this period:
Sarkozy’s so-called austerity differs from Hollande’s preferred spending program mostly in terms of rhetoric. In fact, the data show that Sarkozy’s main response to the financial crisis took the form of stimulus spending bills to jump-start the economy. Hollande’s recent announcement of a planned $16.56 billion in stimulus spending for 2013 signals his intention to continue this tradition.
France has relied heavily on tax increases to contain the deficits exacerbated by stimulus spending. In 2007, total revenue stood at 49.9 percent of GDP, but it has since increased to 51.8 percent. Nominal revenue collection increased 10 percent during this time, from around $1.29 trillion in 2007 to $1.45 trillion in 2012—but France is still running deficits of about $138 billion in 2012.
Between 2007 and the end of 2012, taxpayers were subjected to 205 separate increases in their tax burden, from excise levees on televisions, tobacco, and diet sodas to multiple increases in the capital taxes and a wealth-tax hike. The table below outlines some major French tax policy changes during this period:
Experience and research demonstrates that fiscal adjustments based on spending cuts are more successful than those based on tax increases, as is the case in France. France cannot tax its way out of its fiscal problems. For France to return to secure fiscal footing, they must stop relying heavily on tax increases and implement real spending cuts to contain its huge deficits.
This chart is based on de Rugy’s profile of France for “Europe’s Fiscal Crisis Revealed: In-Depth Analysis of Spending, Austerity, and Growth,” Heritage Foundation Center for Data Analysis, October 23, 2013.