Moscovici's Perpetually Increasing Tax Machine

July 15th, 2013
in Op Ed, syndication

Written by

France's Socialist Party has built up a solid reputation for economic "illiteracy", notably with is addiction to the lump of labour fallacy.

It was this fallacy that guided its thinking when in the late 1990s it cut the working week from 39 to 35 hours, with no reduction in the wage for the working week, as a sure-fire remedy for unemployment.


Follow up:

It was presented to the Parti Socialiste, when it was in opposition, as a central plank of its economic policy programme by none other than the man who was later to become the head of the International Monetary Fund, Dominic Strauss-Kahn.

The misfortunes of this policy were compounded when the German Social Democrats under Gerhard Schröder implemented what was in effect the reverse of this policy, the consequences of which are still ravaging the French economy.

The fallacy still crops up now in discussions of retirement reform : 'if we raise the age of retirement, it will mean more unemployed youngsters'.

It seems Pierre Moscovici, finance minister in the present government, is guided by another principle that is, economically speaking, idiotic, the law of perpetually increasing taxation, as financier Bruno Bertez describes it here at Atlantico.

In Paris newspaper Le Parisien of July 7, Moscovici had the misfortune to be quoted in two separate articles. In the first, in an interview in 'Le Parisien' itself, he said that there would be no new tax increases in 2014. In the second, an AFP report, he said there would be.

To paraphrase what he said in the second:

It's like this, you see. It's not always something the government or anyone else can decide ; it depends on the state of the economy, how it is growing, actually. It so happens that in 2014 there won't be much growth and we shall not be collecting as much tax revenue as we expected. So, you see, we have no alternative; we shall have to put taxes up. Then, when the economy starts growing again, as we reckon it will do after 2014, we shan't have to put up taxes any more and they might even fall a bit. If the economy's not growing you have to increase the taxes, and you can lower than when the economy starts up again. Got it !

And here is Bruno Bertez on the perpetual tax increase machine:

"If the economy is in recession, what is needed is deflation. The more slowly the economic machine is turning, the more it, is necessary to depress purchasing power. We presume therefore that, as one cannot circumvent the laws of economics, Moscovici believes he has invented a perpetual motion machine, of which the socialists have always dreamed, for increasing taxation. You reduce purchasing power by means to taxation, which reduces turnover by the enterprise that is France, and as this mathematically increases the debt ratio, you increase taxes again, and when you increase taxes...... and so on."

In case you doubt the reliability of my paraphrase above, here's the report (translated by your blogger) from Le Parisien.

"In 2014 we shall limit the increase in compulsory levies to 0.3 % of GDP and it is my wish that this will be the last year when taxes increase.

I say that I wish, because it is not up to the government or someone; it depends on the state of the French economy.

When I say that I wish, it is because all our policies depend on a parameter on which we act and to which sometimes we must submit : the growth (of he economy)."

He recalled that the 2014 the budget supposes €14bn by way of reductions in spending and between 0.2 and 0.3 % of the GDP (between €4bn and €6bn) by way of increases in compulsory levies. For Moscovici, after 2014 the compulsory levies should reach a level at which they will stabilize or decline.

And in case you don't think my translation is reliable, here it is French :

"En 2014, nous limiterons la hausse des prélèvements obligatoires à 0,3% du PIB (environ 6 milliards d'euros, ndlr) et je souhaite que ce soit la dernière année où ils augmenteront", a déclaré le ministre au quotidien.

"J'ai exprimé ce souhait, ce n'est pas par rapport au gouvernement ou à quiconque, c'est par rapport à l'état de l'économie française", a expliqué à Aix M. Moscovici.

"Quand je dis que je le souhaite, c'est que toutes nos politiques dépendent d'un paramètre, sur lequel nous agissons mais que parfois nous subissons aussi: la croissance", a-t-il détaillé. Il a rappelé que pour 2014, le projet de budget prévoyait 14 milliards d'économies dans les dépenses et entre 0,2 et 0,3% du Produit intérieur brut (entre 4 et 6 milliards) d'augmentation des prélèvements obligatoires.
Pour M. Moscovici, après 2014, les prélèvements obligatoires pourraient "connaître une pente qui soit celle de la stabilité puis de la diminution"."

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