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Rigid Francois Hollande is giving France a taxing time

Cracking down on tax evaders is good, but the economy needs reforms to boost competitiveness

Gulf News

Many of the problems plaguing French President Francois Hollande are of his own making. In France, like in many other countries, income taxes are a necessary part of funding public expenditure and people accept them as a necessary part of the rights and responsibilities of citizenship.

Hollande is right to crack down on tax cheats. France is in dire financial trouble and needs all the revenue it can generate to service its debt and invest in growing its economy. Smarting from the revelations that his former finance minister is alleged to have been a tax cheat, Hollande has unveiled a series of measures aimed at tax evaders.

However, national tax and fiscal policies — income and spending plans — must be sustainable. Too many — or too high — taxes will inevitably lead to people trying to evade them, resulting in a drop in revenue and an increase in enforcement costs, as well as damage to consumer and investor confidence in a country. But, because of popular opposition to austerity measures and to boost his failing approval ratings, Hollande has been pushing for crippling taxes on high income individuals and company profits in France. However, increasing the tax burden on individuals and companies will most likely only see them move their capital and profits into new (legal) tax avoidance schemes or to new investment destinations.

France needs to undertake fundamental reforms to increase its competitiveness and boost its economy. Tax policy is perhaps the least of Hollande’s problems.