Corrupt France: ‘the tax structure is unimplementable’

Transcript

World Finance: 35 hour work weeks, strikes, astronomical tax, super-rich fleeing the country and getting citizenship abroad. That’s what we hear about France, and it sounds like bad news for the economy. But with a cabinet reshuffle, is there light at the end of the Eurotunnel? With me now is Gaspard Koenig, founder of the French think-tank GenerationLibre.

Gaspard, the new economy minister Emmanuel Macron said “France is sick, and there’s no choice but reform”. So what are the country’s ailments?

Gaspard Koenig: The welfare state, which has been created after the war – probably for good reasons at the time – has grown out of control.

Public spending as a proportion of GDP is 57 percent, which makes it the seventh largest in the world, after countries such as Cuba and Lesotho. France is really doing extremely badly in terms of its public sector.

Another thing that is linked to that is weight of public investment in the country. France has built a traditional public sector, which in itself is not bad. It’s healthy. But it’s now tied with so many regulations – it’s stifled by so many statutes – that it is paralysing our economy.

World Finance: Well Francois Hollande, he’s the man who introduced a 75 percent tax on the rich. That can’t help the situation, so what was he thinking?

Gaspard Koenig: It’s a symbolic measure. You have to bear in mind for instance that income tax in France only makes up 15 percent of the state’s tax revenues. So people are always arguing passionately about the income tax, but it’s a marginal fraction of the tax that the state actually takes from people. It’s just that they don’t see it.

It’s a typical political trap, because it created enormous debate. It clearly tilted the election for Francois Hollande, because people thought, ‘Aw, finally this guy has guts.’ And it is just unimplementable, and actually not implemented at all.

And this is the kind of reform they don’t want to do, because they know it is stupid.

World Finance: The French do have a reputation for being a bit work-shy, with their 35 hour work weeks. Do you think this is fair?

Gaspard Koenig: Exactly like the 55 percent tax, the 35 hour week is merely symbolic, and doesn’t have much effect in the daily behaviour of workers.

[T]his is the kind of reform they don’t want to do, because they know it is stupid

So the average time that French workers do work in a week is 39.5 hours, which makes France among the 20 top countries where people work the most. And the productivity of workers is the third in the world.

World Finance: So why then did it ruffle so many feathers when Macron suggested abolishing the 35 hour work week?

Gaspard Koenig: Most of the people behind the scenes know exactly what needs to be done. But very few people can stand up politically to that, and very few people have the courage to confront the unions… and honestly, to confront the system.

You know, I was a speechwriter for Christine Lagarde for three years when she was a treasury minister. I got to see a lot of those meetings. And I think France is very corrupt. At the top of it, especially in the public sector or para-public sector, you have many people who hold each other.

It’s extremely difficult, where you don’t have a clear mandate. The only person who would be able to make those cooperations is a president clearly elected with a clear majority and a clear mandate.

World Finance: Well finally, how does France compare to more healthy economies such as Germany, and maybe even the UK, which is slated to take France’s place as the fifth-largest economy in the world by 2020?

Gaspard Koenig: Yeah, it’s been some years if not decades that the UK’s supposed to overtake us! I think we have a bit of time. Don’t forget the UK is the old fool. We still have some pride!

France is such a wealthy country compared to the UK

You know what really amazes me is that France is such a wealthy country compared to the UK. Especially when you live in the UK, when you drive through the UK. It’s a country that really made a lot out of very little. Because they took risks, because they encouraged people to come from abroad and to help them build an economy, and they proved to be rather pragmatic.

In France it seems we’re so jaded. We have everything at home: we have a country which is rather healthy economically, we have people who are well educated, good infrastructure, and we sort of mess it up with very, very, very bad policies. And that’s extremely frustrating. And this is part of the reason why so many people are active, in order to turn that around. Because we feel we have incredible assets, and they’re about to get lost if we don’t react quite urgently.

World Finance: Gaspard, thank you.

Gaspard Koenig: Thank you Jenny.