Yellow-vest revolt reflects deep malaise of France
Tax rise that sparked yellow-vest protests against Emmanuel Macron was the straw that broke the camel’s back, writes Matthew Lynn
Three weeks ago, on Nov 15, a ragtag army of protesters dressed in the yellow hi-visibility jackets that are compulsory for French motorists were preparing to travel to Paris for a day of protests that, while may have started peacefully, soon turned violent and ugly. By the end of the weekend, more than 100 demonstrators and police had been injured and many of the capital’s grandest boulevards had been turned into a war zone. But something else happened on that day as well. The French state ran out of money.
Nov 15, according to calculations by the Institut Molinari, a rare French free-market think tank, was the day all money the government raises in taxes had been spent, and it would have to start borrowing to cover its lavish spending for the rest of the year.
It is the earliest date of any of the major European countries, and it is projected to get worse and worse over the next few years. A coincidence? Not exactly. In fact, the rebellion against Emmanuel Macron, the president, is the inevitable result of a failed economic model. For decades, the state has funded an opulent welfare state with increasingly punishing levels of taxation. But time is running out, and Macron’s attempts at reform have so far been laughably inadequate. With his meek surrender to the protesters, it is impossible to see him turning around his presidency now – and the French crisis will get worse before it gets better.
The trigger for the gilets jaunes movement was a planned rise in diesel fuel duty set for January. If we didn’t already have the phrase “the straw that broke the camel’s back”, someone would have to coin it to cover the furious reaction of the French to a fairly modest rise in the cost of filling up their Renault. A few cents here or there on a litre of diesel is hardly the biggest deal in the world.
British motorists are used to being fleeced by the Chancellor every year and don’t do anything more than grumble. But to understand the fury it stirred, you have to look beyond Paris to the France of stagnant wages, stalled growth, mass unemployment and high prices where people are struggling to make ends meet.
France was a brilliantly successful economy over the immediate post-war period. During the “30 glorious years”, as the period that ran from 1945-75 is known among the country’s economists, its position at the crossroads of Europe, its success in the manufacturing industry, and the boost to growth that came from steadily removing tariffs as the Common Market, as the European Union was originally known, was built, were spectacular.
The economy grew at an average rate of close on 4pc a year, far faster than at any comparable period in its history, and making it richer than traditional rivals such as Britain. Not only did the economy grow, so did wages. From 1945-80, average adult income rose by 3.7pc a year. The French grew steadily wealthier as the economy expanded, and managed the enviable combination of higher wages, shorter working weeks and more and more generous benefits. Times were good, and most people expected that to continue.
But from the Eighties onwards it all started to change. Global growth suddenly became far more challenging, and, at the same time, the socialist government led by
François Mitterrand embarked on a disastrous experiment in state socialism that undermined confidence in the economy. The numbers started to slide. From 1980 to 2014, the average annual wage growth dropped to a relatively meagre 0.9pc a year, and overall economic expansion was not much better. While other major European economies such as Britain and Germany reformed and liberalised to meet the challenges of a new era, France stuck rigidly with a model designed for a different world.
Indeed policies such as the 35-hour week doubled down on the old model. High taxes and lavish benefits worked for an economy with full employment and 4pc annual growth. With 1pc growth, and 10pc unemployment, they turned into a debilitating burden.
A few numbers help explain the problem. The median take-home salary in France is just €1,700 (£1,500) a month, very little to support a family in a country where prices are high (and that of course is a median, so half the people are trying to make ends meet on less than that).
Inequality has steadily widened, with the top 20pc of the population earning more than five times the amount of the bottom 20pc. Ever since the financial crash, growth has stagnated, and even with modest upturn this year struggled to reach 1.8pc. Unemployment has remained stubbornly high at more than 9pc of the workforce. France’s social security system might be generous, but it is also crushingly expensive, at a total cost of more than €700bn a year, which must be financed by some of the highest taxes in the world. France prides itself on being an egalitarian country, but that has become less true.
According to the economist Thomas Piketty, whose, book on global trends in capital was a worldwide bestseller, France has been getting steadily less equal, and despite the vast size of its state only looks roughly fair when compared to the United States. From 1983 to 2007, for example, the share of national income going to the top 1pc of earners rose from 8pc to 12pc, and it has gone up even more since then.
Only the US has seen such a widening gulf between the rich and poor. Taxes have become unaffordable for many people. In France, you have to work until July 27 every year simply to pay all taxes and before you earn any money for yourself. That is the latest date in the EU.
As other countries cut taxes and France doesn’t, that gap has been widening. The figures are startling. In order to have €100 of actual spending money, a French worker has to first pay €133 in taxes and social charges. The average for the EU is €84, and in the UK is only €54. French wages might look higher than Swedish or Danish ones, for example. But once taxes are taken into account, the average French worker has 21pc less purchasing power than a Swede and 33pc less than a Dane. Taxes are now at such a level that they are not simply squeezing incomes but creating real poverty and deprivation.
The rise in fuel taxes needs to be seen in that context. In a country with average levels of taxes, and rising wages, they would be a minor irritant. In France, they are simply unaffordable for many families.
That is behind the anger now turning on the president. Mr Macron was elected on a platform of reform and change. But there have been big problems with his agenda so far – and there is no easy fix to them. First, he had no real mandate. True, Macron talked tough during the campaign. But his election was largely a fluke, as he occupied the space created by the collapse of the Socialist Party.
Whoever got into the second round was always going to defeat the National Front’s Marine Le Pen. He had no real grass-roots support – for example, he raised more money in London than he did in the whole of France outside Paris. There is a reason the protesters complain he is the president of the rich and the Parisian elite. He is. Next, his reforms have been laughably timid. There are some planned cuts in corporation tax, but France will still have one of the highest rates in Europe. There are tweaks to wealth taxes, but most countries don’t even have capital taxes and reversing those might well be his next concession to the protesters.
And labour laws have been slightly loosened. But this is no more than tinkering. Finally, he won’t challenge the crushingly deflationary rules of the eurozone as the Italians have done. Macron’s plan was to restore French competitiveness, and then agree a radical reform of the eurozone, including a new finance ministry to boost demand. It hasn’t happened, and doesn’t look likely to now.
In truth, you can’t reform an economy with stagnant demand. So far, Macron has been too desperate to show he is a good European by sticking to the eurozone’s budget rules. His one chance of success was a Reagan-ite programme of radical tax cuts to improve incentives and reflate the economy. But that would have created a rupture with Brussels, and Macron wouldn’t risk that.
The protests, and his meek surrender to them, may have finished him off. The impact on his popularity has been punishing. On Thursday last week, the latest polls showed his approval ratings dropping to just 18pc.
A fresh wave of violence has followed, erupting in Paris over the weekend.
The real question for France now is what happens après Macron. We will find out in the next few months – but it is unlikely to be pleasant.
‘France’s social security system might be generous, but it is also crushingly expensive, at a total cost of more than €700bn a year, which must be financed by some of the highest taxes in the world’
A yellow-jacket campaigner in Paris, after what started out as a peaceful protest turned violent. Right, tear gas surrounds protesters and police at the Arc de Triomphe. Below, members of the ‘gilets jaunes’ movement display their disapproval at the economic policies of Emmanuel Macron, the French president, inset