Sun | Dec 16, 2018

Behind the French protesters' economic discontent

Published:Friday | December 7, 2018 | 12:00 AM
In this December 1, 2018 photo, demonstrators throw items near a burning barricade near the Arc de Triomphe during a demonstration in Paris, France. AP

French President Emmanuel Macron has vowed to cut taxes and boost France's growth. A year and a half after he came into power, he is facing violent protests over rising taxes, a high cost of living and policies criticised by some as favouring the rich.

The country's economic indicators don't always match the public's perception of how the country is doing, but do help understand the popular anger.

Here is a look at the taxes that have become central to the so-called 'yellow vest' protesters' claims.

One of the protesters' big complaints is that they are heavily taxed.

Official statistics support that claim. France was the most heavily taxed of the world's rich countries in 2017, according to the Organization for Economic Cooperation and Development. The French government's tax revenues last year reached 46.2 per cent of annual GDP.

Prime Minister Edouard Philippe acknowledges that taxes "have steadily risen" since 2000 and that Macron's government wants to reverse that trend.

In particular, social security expenses - which pay for the generous healthcare system and pensions - are higher in France than other wealthy countries. As a result, France's poverty rate is also lower than in most European countries.

Overall, taxes are expected to decrease this year after Macron's administration agreed on cuts. The protesters, however, complain specifically about a tax on fuel that Macron wanted to increase.

A fuel tax approved in 2014, under Macron's predecessor, FranÁois Hollande, is part of government plans to wean France off fossil fuels via small but regular tax increases. Taxes represent about 60 per cent of the price of fuel in France.

The next tax increase was due to be implemented on January 1. In the face of the sometimes violent protests, the government said this week that it would suspend the fuel tax increase.

Among the complaints by protesters is that the fuel tax hurts people in rural areas who rely on vehicles for work and transportation, compared with wealthier city dwellers who tend to rely more on public transportation.

In response to the protests, Macron's government notes it has actually cut taxes for French people. However, they will mostly benefit middle-class people with jobs, according to the Institute of Public Policies, a watchdog.

This year's tax cuts focus on businesses, payroll and housing. The government is trying to raise awareness of its efforts: every employee salary slip must now have a line - written in large letters - detailing how much extra money the worker received, thanks to the tax cuts.

While most employees benefit from the tax cuts, almost all retirees are worse off. Macron has said pensioners must make "a small effort" to help workers.

Purchasing power

Many protesters say they can't pay their bills due to the higher cost of living.

Consumers' purchasing power in France fell sharply after the 2008 global financial crisis. But since 2014 it has been growing again, according to statistics agency Insee. This year, a small increase of 0.6 per cent is expected, largely thanks to the tax cuts.

Yet the figure is an average that hides disparities across society.

Macron's first reforms, like a cut to taxes on wealth, largely benefited the well-off, and this is cited frequently by protesters decrying inequality.

The decision to slash a special tax on households with assets above €1.3 million (US$1.5 million) was meant to attract foreign investors. Macron was quickly labelled by critics as the "president of the rich".

Government spokesman Benjamin Griveaux lamented that the wealthy often decided to invest outside France because of taxes. "We want the money to come back," he said.

The Institute of Public Policies says that budget measures for years 2018-2019 overwhelmingly benefit the one per cent richest people due to the wealth tax cut.

It says that the poorest 20 per cent of households will see their real incomes fall because while social benefits remain stable, the prices for goods like energy are rising.

- AP