THERE ARE more ways than one to skin a cat. Or a chat, François Hollande might say. As Michael Noonan and Brendan Howlin wield their scalpels to bridge Ireland’s €3.5 billion budget gap, their political choice, encouraged by the troika, is to look to extracting roughly two euro in spending cuts for every one in taxes from their ailing patient.
France’s socialist president, however, is skinning the cat very differently. In bridging a €30 billion gap to bring the country’s deficit down to 3 per cent of GDP, Mr Hollande proposes to reverse the formula for his 2013 budget, raising two euro in taxes for every one in savings on spending.
Addressing the nation on Sunday, four months into his term, and battling personal ratings that have declined by a third on perceptions of inaction, Mr Hollande stepped up a gear, pledging that he is moving to a “war” footing on the economy and unemployment. He will find half the €20 billion in tax increases from companies and employees, focusing the impact on the wealthiest – on Friday the government insisted that it will implement a key election pledge, a 75 per cent tax rate for anyone earning more than €1 million a year. The measures, critics say, will bring to €50 billion the amount raised in new levies since 2011.
Expenditure savings of €10 billion will be found uniquely from freezing spending, averting the likelihood of a head-on clash with public service unions. But he has also told trade unions and employers that they have until the end of the year to reach a “historic compromise” on long-promised reform that will make hiring and firing easier and loosen up the country’s rigid labour market. Or the government will act unilaterally.
The president said he expects unemployment, currently at 13-year highs, to begin to fall within a year as his proposals to create 80,000 subsidised jobs and to hire 60,000 people in the education sector as well as a so-called generation contract to encourage companies to hire young workers kicks in.
Economists have welcomed Mr Hollande’s reductions to 0.8 per cent in the growth projections on which his plans are predicated. But most fear that these remain over-optimistic, not least because of the likely impact of his direct tax increases on investment and growth. France’s state auditor has calculated that if, as many predict, there is no growth next year an additional €14 billion will need to be found to reach the 3 per cent deficit target so crucial to reassuring bond markets about Mr Hollande’s fiscal responsibility.