France's Bloated Budget

As a little addendum to our recent update on president Hollande's sudden fall from grace, here is one reason why he has such a hard time to get France's financial house in order. The standpoint of the electorate seems to be: whether it is affordable or not, you cannot stop, or even slow down the rate of growth of government spending.

While people are against cutting government spending, they are equally opposed to increasing the taxes that make such spending possible. As a rule, everybody wants to live at the expense of everybody else.

This attitude is of course not unique to France, it rather is symptomatic for the expectations welfare statism has engendered in populations everywhere. They want business as usual to continue, even though it is evidently no longer affordable.


Reuters reports:



“Most French people oppose ending inflation-linked rises for private-sector pensions, a poll showed on Saturday, highlighting the challenge facing the government as it prepares broader changes to the pension system.

Some 75 percent of respondents reject a deal on Wednesday in which unions and employers agreed on adjusting private sector pensions by less than the rate of inflation, the Ifop poll for the Journal du Dimanche newspaper showed.

The agreement was seen as a test of the government's chances of making similar changes to the broader system when it unveils a reform in July to rein in an overall annual pension deficit set to hit 20 billion euros by 2020.

The poll, carried out among 1005 people on March 14-15, also showed that nearly three quarters of respondents would oppose increasing taxes on diesel, another possible step for plugging fiscal shortfalls proposed by the government's auditor.

Any tax rise would be a controversial move in a country where diesel accounts for 80 percent of road fuel consumption, and ministers have insisted that it will not happen this year.”


(emphasis added)

However, we should add to the above that the French government's spending at present amounts to a stunning 56% of GDP – i.e., it is not an exaggeration to state that France is slightly more than half-way to becoming a full-blown socialist command economy.

Surely there are more than enough opportunities to bring such a large amount of spending down. We have mentioned Joseph Salerno's assessment of the French government's expenditures in a different context recently: namely that the French budget isliberally larded with fascistic corporate welfare subsidies and bailouts”, as he puts it. That is undoubtedly the case. The French public therefore actually has a point when it voices its displeasure with mooted pension cuts in real terms and tax increases on diesel: there is no doubt a lot of other spending that could be axed first instead.

In fact, as the data below show, while government spending is huge everywhere in the euro area, France is actually beating all the other member nations in this department. It is also noteworthy that the adoption of the euro has been followed by an increase in government spending everywhere.  However, that is not a particular fault of the euro itself, but rather the result of the economic downturns following the great asset mania of the 1990s being met with a Keynesian response (which rather obviously has completely failed to improve the situation).




Public spending in the euro area as a percentage of GDP 1980-2012. The shaded area is after the introduction of the euro (chart source unknown) – click for better resolution.





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