French taxman promotes revolution to save system

Every time a French government takes on the country's unwieldy bureaucracy, civil servants revolt and the prime minister backs down. "I'm aware that we in France often have a poor image when it comes to state reform," Francois Villeroy de Galhau, the director general of taxes, told a small group of foreign journalists here. "Especially after the first plan (for tax reform) was withdrawn."

In March 2000, the finance minister, Christian Sautter, was forced to resign because tax agents went on strike during income tax season. They objected to attempts to do away with France's two-headed system, which was invented by Napoleon Bonaparte. To guarantee the honesty of all involved, the emperor built a wall between tax assessment and tax collection.

The two services have separate computer systems, offices and telephone numbers. For the French taxpayer, correcting an error is a maddening process. But merging the two administrations would mean job losses - a red flag to the civil servants' unions.

Mr Sautter's mistake was speeding up the reform planned by his high-profile predecessor, Dominique Strauss-Kahn. The former prime minister, Laurent Fabius, was moved to the finance ministry at Bercy to smooth things over. About the same time, Mr Villeroy de Galhau, a genial 42 year-old polytechnicien, enarque and inspecteur des finances - who had been Mr Strauss-Kahn's chef de cabinet - was appointed directeur general des impots.

The challenge facing Mr Villeroy de Galhau was to respect the Prime Minister, Mr Lionel Jospin's vow to continue reforming the tax system, but without antagonising the civil servants' unions. His first handicap, he says, is the cost of the French system. "France spends 22 billion French francs (€3.35 billion) to collect Ffr2,200 billion in taxes every year. That's one of the highest rates in the OECD."

Every large French town has a Hotel des Impots and 98 per cent of the country's 78,000 tax agents work outside Bercy - partial explanation for the high cost. And France is one of the few OECD countries that does not use a PAYE system. "So the distribution of responsibility between companies and the authorities is different," Mr Villeroy de Galhau explains.

He counts the separation of tax assessment and collection - "the heart of the difficulties last year" - as the second main handicap faced by his administration. The third is the imbalance in power between civil servants' unions and the public. "The unions are strong throughout the French administration," Mr Villeroy de Galhau says. "There's nothing wrong with that, but the public is at a relative disadvantage."

To counter these handicaps, France's chief taxman prescribes mini-revolutions centred on management, taxpayers, the Internet and the 35hour working week. "I believe very strongly in a revolution in management; an administration must not be judged on its budget but by its results - which has been the case in the private sector for a long time," Mr Villeroy de Galhau says. His 107 directors of fiscal services are evaluated annually for their adherence to a "contract of objectives". Only two government directorates are bound by such contracts at present.

The contract aims to "promote fiscal civics" by improving services to taxpayers, including face-to-face meetings, returning telephone calls and responses within a month to all queries on Bercy's website. An experimental tax telephone centre has received 40,000 calls in three months. And Bercy has surreptitiously started merging assessment and collection; from January 2002, a new Directorate of Large Companies will centralise all tax administration for big business.

The tax administration is also developing a "fiscal e-administration" called Copernicus after the 16th century Polish astronomer who discovered the Earth rotates around the sun.

The law on the 35-hour working week will take effect in the administration next January. A wicked joke says that the civil service will adapt by moving to 30 hours a week, then 31, then 32 and on up to 35. But Mr Villeroy de Galhau insists his tax agents work more than 35 hours at present. "With the same number of employees, we must be more productive - work better to work less, without increasing costs to taxpayers."

Ultimately, time is the finance ministry's main ally in streamlining the French tax administration. The baby boom generation will begin reaching retirement age in 2005; 40 per cent of civil servants will retire over the following decade. Obviously some will be replaced, but those 78,000 tax agents will be reduced by attrition.