Nicolas Sarkozy was once hailed for a reformist drive to modernize and stimulate France‘s economy. So, has any of it survived his failed re-election and relegation to the club of France’s one-term presidents (current membership: two)?
Not much. On Thursday night, France’s leftist parliament passed a rash of tax hikes intended to generate new revenues required to meet its budget deficit targets. For all intents and purposes, however, that action represented a near systematic reversal of Sarkozy’s main policy achievements. Not surprisingly, opposition conservatives are howling at the ruling Socialists for taking the legislative eraser to Sarkozy-era reforms, decrying on economic and ideological grounds that kind of solution to France’s debt-borne crisis and sluggishness.
The legislative moves came as part of the passage of a wider bill seeking to address an enormous short-fall in budget funding discovered by an audit of state accounts ordered by Socialist President François Hollande immediately after his election three months ago. The result: Socialist leaders hit the “delete” button on virtually all major Sarkozy reforms.
The most symbolic reversal was the decision to resume taxing overtime pay—and putting an end to state subsidies used to finance that exemption. That marks the end to Sarkozy’s cornerstone legislation seeking to coax people to increase their disposable income–and boost business productivity—by working extra hours for de-taxed pay. “Work more to earn more” had served as the political potent slogan of Sarkozy’s successful 2007 presidential campaign, in which he promised to deliver increased economic activity, revenue, and wealth through liberalizing labor reform.
In reality, the innovation did little to lift employee income, and cost the state over $30 billion in subsides. Moreover, critics contend, the measure inspired companies to avoid hiring new workers from among the unemployed, and instead compelled existing staffers to work longer hours that—thanks to state underwriting—were suddenly cheaper for employers.
“It cost ($6 billion) a year without doing much for economic activity and growth,” government spokesperson Najat Vallaud-Belkacem told France Info radio Thursday.
The leftist airbrushing of Sarkozy policies didn’t stop there. Others repealed a law adopted by the right earlier this year that cut salary-based charges that employers finance, shifting those costs to the general public in the form of a value-added tax increase. The leftist majority also approved a hike in taxes on the assets of wealthier people that Sarkozy lowered in August, 2007, part of a host of similar cuts denounced by the left as favoring the affluent and businesses. After the Socialist action on Thursday, France’s richest household will see their wealth taxes rise from 14% to a wallet-frightening 143%.
There’s more. Another portion of the revised budget bill passed Thursday imposes a one-off supplementary tax on households whose assets surpass $1.3 million. Even members of Hollande’s Socialist cabinet were upfront about the moves. How else can it be described than soaking of the rich? “This exceptional contribution is a harsh effort being demanded from those who can afford to make it,” commented junior budget minister, Jérôme Cahuzac.
The privileged classes may have been dunned but there is no populist dancing going on in streets. The bill passed Thursday—which will now clear routine legislative procedures before becoming law by August—makes good on Hollande’s campaign promises to enforce social “justice” by making the rich shoulder their share of France’s pain. But the French public is aware that the squeeze on fatter wallets won’t forestall pressure on more meager pocketbooks. Indeed, conservatives argue that overturning Sarkozy’s de-taxation of overtime is less a raid on corporate coffers than it is an inhibition for people to work for more income by way of overtime in the first place. According to Laurent Wauquiez—whose multiple cabinet roles under Sarkozy included secretary of state for employment—the overtime tax revision will immediately reduce incomes of 9.5 million employees by as much as 7%. “François Hollande knowingly lied about overtime,” Wauquiez said on France Info Wednesday. “The law before us is exactly the opposite of what he said during the campaign, (when) we were told only businesses will pay the cost. Ninety percent of that charge will in fact go to employees.”
Not surprisingly, Socialist government officials contest that analysis. They also maintain that conservatives are poorly positioned to dispense lessons in social equity, given the dismal state the right has left France. In fact, Sarkozy’s own government started pulling back some of the president’s beloved reforms in mid-2011, when the euro and debt crisis threatened to infect France and send Paris’ borrowing costs to unsustainable levels.