France’s Hollande Putting Off Tough Budget Decisions

François Hollande has raised taxes on the rich but is delaying tough but likely necessary spending and tax measures.

French Socialist Party leader François Hollande during a discussion with European counterparts, May 5, 2011
French Socialist Party leader François Hollande during a discussion with European counterparts, May 5, 2011 (Party of European Socialists)

French president François Hollande has dealt only with the “easy stuff” in his revised budget this year, delaying tough but likely necessary spending and tax measures until next year.

Pierre Rousselin, foreign affairs editor for the conservative French newspaper Le Figaro, wondered on France 24’s Debate show on Thursday why the Socialist president, who was elected in May, is waiting for next year’s budget for austerity measures to take effect. “One would imagine that he would start with the difficult things, just by the fact that he’s enjoying the popularity coming out of his victory in the polls,” he said.

Hollande’s approval rating was still over 50 percent last month but is expected to fall if his administration announces entitlement and labor market reforms that are needed to rein in government spending and boost France’s competitiveness relative to other countries in the eurozone, including neighboring Germany.

To reduce this year’s shortfall by several billion euros, the Socialists increased income tax rates for the rich and implemented a one time wealth tax. They simultaneously repealed a sales tax increase that had been enacted by the previous conservative administration and insisted that François Hollande’s campaign promise to hire tens of thousands more civil servants would be kept.

Next year’s deficit, which is expected to come in at 4.2 percent of gross domestic product, can hardly be mended with tax hikes alone. The government will have to consider entitlement and welfare cuts or privatizations to reduce spending, all of which are unpopular on the left. So why wait?

“To tax the rich is not very difficult,” said Rousselin. “There are more people who are not being taxed and who are enjoying the fact that the others are being taxed.” But when the Socialists start cutting spending, they will face resistance from their constituents as well as opposition from the far left.

That is, if they intend to stand by their pledge to keep the deficit under 3 percent of GDP in compliance with European fiscal treaty rules.

The French economy is projected to expand by .3 percent this year. Since the beginning of the crisis, the country’s debt-to-GDP ratio has risen by 30 percent to nearly 90 percent this year.