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France to eliminate tax cap, reform wealth tax

France is unfortunately known for its high taxes. One of the recent fiscal measures, le bouclier fiscal or the tax cap (a.k.a. tax shield) limited all direct income taxes to 50% no matter the income bracket. I wrote about this recently on Bonjour Paris. Those who defended it said it lightened the load of taxes, but those opposed to it reckoned it protected the wealthy while not contributing to reducing the deficit and debt.

Recent debate lead up to today’s decision, announced today by Prime Minister François Fillon, to end the policy. (However, some sort of tax cap will remain in place, at an unspecified percentage, for the less well-off, which make up 52% of the beneficiaries). You can see the French article from Le Point at the link above, and the video from BFM TV below.

Below the video, excerpts from this Wall Street Journal article. Next on the agenda: reforming or abolishing the wealth tax (see more in WSJ and Bonjour Paris articles as well as a detailed report by Le Figaro), which could help as many as 300,000 households pay less tax.

What are your thoughts on these developments?

EUROPE BUSINESS NEWSMARCH 3, 2011, 7:38 A.M. ET
French Prime Minister Says Tax Shield to be Abolished

By WILLIAM HOROBIN

PARIS—French Prime Minister François Fillon Thursday confirmed the government intends to abolish a tax shield that has become a controversial hallmark of Nicolas Sarkozy’s presidency.

Mr. Sarkozy decreased the threshold of the tax shield shortly after coming to power in 2007 so that no taxpayer pays more than half their income in taxes. But his ratings have hit record lows and the tax shield has become a thorn in his side as many voters see it as a measure benefiting the wealthy few.

“We have to face up to reality: the tax shield has been misunderstood, and the crisis has probably made our citizens more sensitive to some of its effects,” Mr. Fillon told a conference, organized to discuss the reform of property and capital taxes that Mr. Sarkozy has promised for the first half of 2011.

The tax shield was designed in part to limit the impact of France’s wealth tax, which Mr. Sarkozy also intends to reform before the presidential elections in May 2012.

The government says it will either do away with the wealth tax completely or significantly modify it. Mr. Fillon said Thursday said the reform will free 300,000 households from the wealth tax.

Yet the government is insisting the reform must have a neutral impact on public finances at a time when France is fighting to rein in deficits. If the wealth tax and the tax shield are abolished, the government will need around €3.2 billion ($4.44 billion) to make up the shortfall.

“We won’t finance this reform with debt. Balancing the budget will be strictly respected,” Mr. Fillon said.

He also ruled out a variety of options that have been suggested in recent months. The government will not tax gains on the sale of main residences, will not reverse its reduction of inheritance tax, and will not introduce an additional tax bracket, Mr. Fillon said.

Mr. Fillon also said the reform of capital and property tax is one of the reforms necessary for greater tax convergence in the euro zone.

European leaders are negotiating a competitiveness pact for members of the euro zone. Some countries have balked at Franco-German proposals that they fear would compromise their sovereignty in sensitive areas like pensions and salaries.

Mr. Fillon said France and Germany should aim to harmonize corporate taxes, starting with the base of these taxes before looking at the rates.

Bonjour Paris: Sarkozy’s new cabinet

November 20th, 2010 No comments

In this week’s Bonjour Paris, a great resource, I write a piece analyzing French President Nicolas Sarkozy’s new cabinet after the reshuffling. It talks about changes, Prime Minister François Fillon, the French economy, Bettencourt scandal, Sarkozy’s 10 big challenges for the remainder of his administration and 2011 Senate elections and 2012 presidential election. Excerpts below.

Just an FYI: there are strikes planned for Nov. 23 against the now lost-cause of retirement reform, but they are not expected to cause much disruption. Nonetheless I will update my blog Nov. 22 with any relevant information.

As promised, President Nicolas Sarkozy finally carried out the long-awaited reshuffling of his cabinet. This is a traditional move by French presidents during their administrations, regarded as an effort to regain popularity and credibility after facing approval-rating problems. Mr. Sarkozy has certainly had those.

The Economist cites a poll by Ifop that puts Sarkozy’s approval rating at 36% and that of Prime Minister François Fillon at 55%. This is one principal reason Fillon was kept in office – defying the modern trend of presidents changing prime ministers once or twice per administration. In fact, as the same article notes: “If he keeps his job until 2012, M. Fillon will become the first prime minister in modern times to have survived a president’s entire term.” This is due in part because “his calm, reassuring style makes him the antidote to the hyperkinetic president.”

So the fact that Fillon stayed on makes this both an uneventful reshuffling and an exceptional one. You can see a group photograph and learn the names of all cabinet members on the Elysée website here. You can also read coverage of it in the New York Times. Some of the most notable changes come at Defense Minister (old: Hervé Morin; new: Alain Juppé) and Foreign Minister (old: Bernard Kouchner; new: Michèle Alliot-Marie). Overall, it is a government that is more right of center, and one of the most unsurprising changes was at Budget Minister, where François Baroin replaced Eric Woerth. Woerth had been entangled in the Bettencourt scandal. But Nicolas Sarkozy supported him fully in a speech to France about his reshuffling.

Sarkozy will face 10 big challenges during the second half of his term, according to weekly Le Point: strengthening his UMP party unity for 2012; regaining approval ratings; keeping the French Senate to the right (Senatorial elections are in September 2011 and could swing left); reforming fiscal policy; financing aid for the elderly; supporting employment; improving France’s image abroad; getting support from students and the youth with convincing plans; and mastering the internet.

For more information, The Economist has quality coverage of this event. France 24 also covers it.

The challenge now is implementing further reforms – on the heels of the unpopular retirement pension reform now law – to improve the French economy while remaining popular enough to have a chance at reelection in 2012. But there are already many candidates from several parties waiting in the wings, most notably IMF head and Socialist Dominique Strauss-Kahn and former Prime Minister conservative Dominique de Villepin.

French retirement reform passes; Fillon kept as PM; strikes for Nov. 23

November 14th, 2010 No comments

I write for Bonjour Paris and this week have this article about the French retirement reform passing. Be sure to check out Bonjour Paris.

Excerpts from my article below:

After two months that saw many days of strike action (sometimes marred by violence) by unions, schools and others opposed to the French government’s retirement reform, it has become law. President Nicolas Sarkozy had given ground on certain areas, such as easing pension requirements for working mothers and those who work in arduous, labor-intensive jobs.

But he did not give in to union demands to keep the retirement age at 60 and the age for full pension at 65, instead remaining determined to raise these to 62 and 67, respectively. Business newspapers give an in-depth look into the details of the pension law (in French).

In the end he succeeded, despite strike action, because of many factors including a special parliamentary procedure that did not allow for debate on each amendment and thus facilitated voting on the proposed bill in the Sénat and Assemblée Nationale. Another reason is that strikes in France do not have the power they used to, with a legal minimum service in schools and in transportation making life less difficult for everyday people. The Paris metro operated during the heat of the strike.

He succeeded in this reform where past French presidents attempting it had failed because of giving in to strike pressure. But what has this done for his popularity and chances of being re-elected in 2012?

The BBC reports that it has certainly undermined his approval ratings.

In the midst of this lack of popularity, Sarkozy is planning a TV address on Nov. 18 to announce a cabinet reshuffling, with Prime Minister François Fillon being kept in place (having been reappointed to the position today after resigning from it only yesterday) but other ministers to be changed, a traditional move by the presidency to regain popularity. But the unions are still calling for strike action Nov. 23. Although aware that they will likely accomplish nothing against what is already law, they are already preparing action on other measures to keep momentum going, like work insurance, complementary pensions, youth unemployment problems, etc.

For now, Sarkozy has won the battle. But will he win the war? We’ll have to see. The definitive answer will come in 2012.

Bonjour Paris newsletter: French government news, strike update

November 8th, 2010 2 comments

I write for Bonjour Paris and this week I have a piece about the French government cabinet reshuffle with updates on the strike movement (which seems to be dying down as the retirement reform bill is set to become law). Check out other articles on the site as well, on such subjects like French wine, hotel recommendations, Obama-Sarkozy relationship and more. Excerpts below from my article. I’ll be sure to update you on any strike situation that could affect you.

Indeed, the strikes on Nov. 6 saw significantly less participation, with unions divided about the future of the movement. Figaro asserts that the movement has loss all momentum. Le Point writes that as turnout was lower than previous days, tension is high among unions about the future. They will decide Monday on whether or not to carry out further action. I will let you know what they decide.

In the wake of several weeks that have seen strikes around France in protest against French retirement reform proposed and enacted by President Sarkozy’s government, the “movement” has calmed down significantly since the somewhat violent clashes between youth and police in Lyon and elsewhere a couple weeks ago.

Where do we stand now? The pension reform law has been voted by Parliament (both Assemblée Nationale and Sénat) and is now awaiting final approval by the Conseil Constitutionnel (the Constitutional Council, a bi-partisan board that evaluates the constitutionality of proposed laws) before becoming official law.

The unions called for a strike on Saturday Nov. 6, but following the relatively low turnout for protests compared to past demonstrations, they are thinking about the future of other days of action. Even if the reform becomes law, despite its “injustice” in the eyes of unions, they say they would continue to demonstrate and protest in policies linked to purchasing power, working conditions and other issues for them. The French Left is now considering actions to capitalize on the frustration of the streets, according to Libération, to prepare for the 2012 presidential elections.

Meanwhile the government is preparing for a reshuffle of ministers, with rumors surrounding the Prime Minister François Fillon and whether or not he will be replaced by Jean-Louis Borloo (current Minister of Ecology and Energy, Sustainable Development and Town and Country Planning).

In the conservative Figaro, a poll finds that nearly 87% of respondents want Fillon to stay on. Indeed, his level of popularity has remained higher than Sarkozy for a long time now. Many French see him as intelligent, calm and composed as opposed to the hyper-active and micro-managing President.

One thing is for sure. France is the midst of significant social change that will have an impact in years to come, and for many French, 2012 could not come soon enough. But there is a lot of time between now and then, and Sarkozy could make a come-back. That looks unlikely at the moment.

French strikes go into overdrive

October 19th, 2010 10 comments

Following on my post about Oct. 19 planned strikes, they are well underway across the country. You can see specials in New York Times as well as here too with pictures, BBC News, Libération, and Figaro. BBC even has Q&A about the strikes. English translations of French press commentary can be read here. BBC has pictures here.

France 24 has a travel survival guide posted as well, stating that disruptions could continue for the rest of the month. I’ll be sure to keep you informed.

Paris metro and suburban rail line updates can be found on the RATP website. At the time of this posting, metro line traffic was getting back to normal, but bus lines were still disrupted. RER trains are running 2 out of 3 for the RER A, 1 out of 2 for RER B (the Charles de Gaulle Airport line).

You can see the status of your trains in Ile de France (Paris region) for RER trains on this website. You can get more info on SNCF trains here. You can find information for other metro areas transport below, mostly in French. You can see the status of departures and arrivals in the main train stations at Gares en Mouvement website.

Aéroports de Paris (which runs Orly, Roissy Charles de Gaulle and Beauvais airports) said to expect possible delays, cancellations and other inconveniences on Oct. 19 and after. Check with your airlines, as some were asked to cancel flights.

Other major cities and their transport systems below with relevant updates:
Lyon, Grenoble, Marseille, Toulouse, Bordeaux, Strasbourg, Lille, Nice, Nantes, Rennes, Dijon, Brest, Caen, La Rochelle, Le Havre, Montpellier

You should know as well that almost 3000 gas stations at supermarkets (50% of supermarkets) are almost or completely out of fuel, as fuel depots are blocked around the country by strikers. 4000 stations are being affected by a slowdown in provisions, but François Fillon says there should be a “return to normal in the next four to five days.” Sarkozy said he will respond “with force” to get the economy back going. In the meantime, here are some tips about how to find a station.

BBC posted this info from the IEA concerning the fuel shortage:

-France, like other European countries, has at least 90 days of oil reserves
-Emergency reserves are held by oil industry and last for 30 days
-Strategic reserves are controlled by the government and last for 60 days
-The reserves are divided between crude and “oil products” – petrol, diesel and heating oil
-The reserves are held at France’s 12 refineries and 100 oil depots

It seems the participation at midday is down from last week, but it is still quite significant. President Nicolas Sarkozy and Prime Minister François Fillon are determined to pass the reform, with Sarkozy calling it his “duty”. The reform is set to be voted on by the French Sénat tomorrow. Figaro has a fantastic, detailed chart of what the reform proposes. As you will see, fonctionnaires remain the aristocracy of France, weighing on pensions even more.

In addition to transport, some schools are closed as well as the post offices. 400 high schools are blocked on strike around the country (including the one next to my apartment), with violence breaking out at some like in Nanterre. There were some quite vulgar signs and banners that I will not detail here, but one could say that the lycéens are not happy. Youth feel like raising the retirement age will be to their detriment, not only for working longer but also for leaving older people in jobs that they feel could prevent them from getting jobs. But that is only if the economy cannot diversify and produce jobs for young graduates.

Since Socialist president François Mitterrand lowered the retirement age from 65 to 60 in 1981, the unemployment rate has averaged 9.5% from 1983 to 2010, based on many factors including especially rigid labor laws that make it costly for companies to hire (payroll taxes can reach almost 50%, so that for an employee making 2000 euros/month, the company is paying about 4000 euros). So while I understand the worries of students who want to secure a job after their studies, I certainly do not think raising the retirement age will take away their jobs. How many 20 year-olds take jobs that 60 year-olds take, anyway?

What France needs is to raise the retirement age, and 62 is a reasonable level to start with (it will go higher after), and it needs to encourage private industry, venture capital, entrepreneurship and reduce costs for companies to give them incentives to hire. There is a traditionally anti-business sentiment in France, akin to the anti-government feelings in the US. But I think in the past couple years our countries have started to bridge that gap slowly – but there remains undeniable cultural disparity.

A couple of interesting polls give insight into the situation. The first one asks “Do you think the strikes and protests are beginning to lose steam?”, and over 58% said yes, but this was conducted by the Figaro, which is center-right. The second one, still by Figaro, asks if the government should use force to gain access to fuel depots that are blocked. The result? An overwhelming 80% said yes. Indeed, Sarkozy said that he would do this, because the economy is being hit by these strikes

Figaro TV news is at the bottom of this posting to give you an inside look at the violence between youth and police. I’ll update this week as we go along. Good luck!

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