- The Washington Times - Sunday, September 3, 2000

You know the world must be changing when even the French Socialists decide that taxes are strangling economic development. This stunning discovery was announced last week by French Finance Minister Laurent Fabius, along with the news that he personally would see to it that the French people would get much needed relief. All the hoopla with which this announcement was sprung on the world did not necessarily sit well with Prime Minister Lionel Jospin. Not because Mr. Jospin did not agree, but because he rather resented having the finance minister steal the show.

There is no doubt tax relief is overdue. French capital has been fleeing across the channel to the British isles, where tax shelter is available from the French tax terror. Currently more than 200,000 Frenchmen are availing themselves of that option, and numbers are growing much to the chagrin of the French authorities.

However, with France's current tax structure, this is no wonder. France has the third highest top-marginal rate of the tax-happy European countries, 54 percent. Corporate tax is 36 percent. This is clearly growth-stifling levels. It was one of the premises of the adoption of the common European currency, the euro, that the economies of the European Union would have to adapt to new realities, and Mr. Fabius' proposal is a case in point. Though the euro itself has performed disappointingly, economic reforms are taking place. The French proposal constitutes a $16.33 billion tax cut over the next three years, and brings down the top rate from 54 to 52.5 percent, which is not exactly revolutionary, though a step in the right direction. Businesses would get a break with the elimination of a 10 percent surcharge put in place by the previous government.

Interestingly, the French Socialists are following in the footsteps of the German Social Democrats when it comes to tax cuts. However, the German government of Chancellor Gerhard Schroeder has gone further reducing the corporate tax from 40 to 25 percent and the top rate on income from 51 to 42 percent. What has this world come to?

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