Nov. 20 (Bloomberg) -- Another week, another round of protests in France against President Francois Hollande’s tax increases.
Farmers have threatened to block roads into Paris tomorrow, saying they’re “fed up.” Horse-riding centers are set to protest this weekend against a higher sales tax, an issue ambulance drivers demonstrated against earlier this week.
The swelling tax revolts underscore the two-front economic battle that has made Hollande France’s least popular leader since 1958. He’s under pressure from the European Union to cut the budget deficit and from an electorate squeezed by one of the world’s highest tax burdens and unemployment at a euro-era record. In response, Prime Minister Jean-Marc Ayrault said yesterday that while the government won’t back down on a sales levy set for 2014, it will consider overhauling the tax system.
“Given their unpopularity, it’s very difficult for the president and prime minister to find any room to maneuver,” said Yves-Marie Cann, head of research at pollster CSA in Paris. “The prime minister has sent a signal that the French have been waiting for but the solutions won’t be immediate. The government’s ability to lead the debate is constrained.”
Ayrault intends to hold talks with businesses, unions and lawmakers from all parties about matching public spending and services, with an eye toward drafting the 2015 budget. He also promised that public spending will fall by 45 billion euros ($61 billion) between 2015 and 2017.
“I hear the anger and the feeling that people have doubts about what purpose their taxes serve,” Ayrault said today on France Inter radio. “There’s always a sense you are paying more than your neighbor.”
He said his consultations with unions, businesses, and political leaders will start Nov. 25.
“We will discuss what sort of public services we want as a nation and how best to fund them,” said Ayrault, adding that he accepts that the tax system is seen as inefficient and unfair.
It’s not just about efficiency. The French government collects 46 percent of gross domestic product in taxes.
Standard & Poor’s estimates that government revenue amounts to 53 percent of GDP, once fines, dividends and other income are included -- more than any country outside Scandinavia. French state spending totals more than 56 percent of GDP, the highest in the euro area, it says.
Though taxation has increased by a total of 70 billion euros over three years, including under Hollande’s predecessor Nicolas Sarkozy, protests have spread in recent months as the current Socialist president implemented measures ranging from a tax on truck traffic to the sales tax increases.
This week’s demonstrations followed violent protests against the trucking tax in Brittany and a threat by soccer clubs to refuse to play a round of league matches to oppose a 75 percent tax on salaries of more than 1 million euros.
“The French are still fighting a class war,” Frits Bolkestein, a Dutch politician and an EU commissioner from 1999 to 2004, said in an interview in Amsterdam yesterday. “It’s unbelievable that they see the economy still as a class war, as the upper class against the lower class, which is a nonsensical way of looking at the economy.”
In January, the sales tax levied on horse-riding centers will rise to 20 percent from 7 percent, the result of an EU ruling against their French classification as agricultural.
The increase risks the closure of 2,000 out of 7,000 riding centers, throwing 6,000 people out of work and causing 80,000 horses to be put down, according to Groupement Hippique, the industry association.
Meanwhile, farm groups are threatening to slow commuter roads into the capital tomorrow. In addition to demanding an end to the trucking tax and a repeal of higher value-added tax on fertilizers, they’re angry about new local laws that limit use of farm vehicles and a shift in EU subsidies to livestock from cereal farms.
Farmers are “fed up with a whole range of taxes and regulations,” said Marie Marques, mission chief at the regional branch of the National Federation of Farming Unions.
Finance Minister Pierre Moscovici said in August he understood why people are angry. “There was revolt in the air,” he said on France 5 television Nov. 13. CSA polling shows that 84 percent of the French identify agree, Cann said.
The problem for Hollande is that taxes, government spending and the economy can’t be changed overnight. And with an approval rating of 20 percent, according to an Ifop survey Nov. 15-16, he has less support than any of his Fifth Republic predecessors.
“These new taxes are the breaking point for many French,” Marie-Christine Dalloz, a lawmaker in for Sarkozy’s UMP party, said yesterday. “President Hollande had promised a tax pause, but now the French don’t trust him anymore. Taxes have reached intolerable levels.”
In the midst of all the gloom and revolts, France did get some cheer last night when the national soccer team qualified for next year’s World Cup in Brazil, beating Ukraine 3-0 in Paris and overturning a first-leg 2-0 loss in Kiev last week.
Ayrault said he “shared the happiness of the French people” but said he didn’t expect it to give much of a boost to the government’s popularity.
“It counts, but it remains a sporting event,” he said.
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