Something is rotten in Paris

[Dr Mordrid]

http://finance.fortune.cnn.com/2012/07/06/somethings-rotten-in-paris/

Something's rotten in Paris

Moves by the new socialist government are setting the country up to become the next major victim of the European financial crisis.

FORTUNE -- The French government's new budget and agenda could destabilize the nation's already shaky economy, setting the stage for a vicious chain of events that could end up pummeling its weak banks on Wall Street, while shattering the eurozone for good. While some elements of the budget are laudable, there are still too many that risk pushing France into a deeper economic sleep. Hard reforms are needed in the country's bloated bureaucracy and overly generous health and pension schemes if it ever hopes to balance its budget and move forward, but that is much easier said than done.

Nevertheless, France's new government, led by the Socialist Party, has the political capital and connections to get things done in a speedy and positive manner. But as long as party ideology trumps reason, France could eventually find itself in the same boat as its fellow eurozone counterparts, struggling to cope with impossibly high borrowing rates and anemic economic growth.

Jean-Marc Ayrault, France's new Prime Minister, on Wednesday, released the specifics of his party's plan to lift France out of its economic malaise. With the Socialist Party now in power of both the executive and legislative branches of the French government, whatever Mr. Ayrault wants will probably become law. Working in close conjunction with the nation's new President, Francois Hollande, Mr. Ayrault has endorsed a number of controversial measures aimed at raising revenue to plug the massive hole in the country's budget.

Running a budget deficit is frowned upon in the 17-member eurozone as one nation's debts can impact the value of the common currency for all members. As such, countries in the eurozone are only allowed to have an annual budget shortfall equal to around 3% of their yearly income. France has had a hard time complying with the rule, running large budget deficits since the 1970s.

On Monday, an independent audit of the French economy, ordered by the new government, spooked the markets as it showed that France was on course to run a budget deficit equivalent to around 5.2% of its output, up sharply from earlier estimates. The budget gap grew after the new government announced plans to roll back a number unpopular austerity measures passed by the former conservative government. The deficit also expanded as the government finally got real about its economic situation, forcing it to adjust its overoptimistic economic growth forecasts. The government now projects the French economy will grow at 0.3% in 2012, down from the rosier 0.7%. They also lowered their 2013 forecast, projecting a 1.2% growth, down from 1.75%.
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[paulw]

Not surprizing. The reason that these socialist countries in Europe are in trouble is that there is no one to steal money from any more. The citizens are taxed to the hilt, the banks have billions in bad loans and no one wants to lend them any more money. Guess the next thing they will want will be US foreign aid..

[Brian Ellis]

This appears to be a one-sided view. Firstly François Hollande inherited a catastrophic economic situation from Sarkozy who managed to reduce state revenues without significantly reducing expenditure. The austerity measures of the latter just scratched the surface without touching much on the biggest drain: agricultural subsidies, while Europe's Common Agricultural Policy cut external funding. One must not forget France is a largely agricultural country with a militant farming community who don't take kindly to bot being able to renew their Mercedes every other year.

So, how can the economy grow? Industry has always been the whipping boy, which has resulted in a strong union movement. Any hope of growth must come from revenues being restored. The only real way left is by increased taxation and Hollande's view is that it must be done by taxation of the 2% or so of the population with obscene incomes, while not increasing taxation of the other 98%. Not earth-shattering! At the same time he is encouraging innovation, especially by SMEs, something the EU is waking up to, as well.

Yes, it will take time to implement these policies and the situation will deteriorate initially, before the new measures take effect. However, things can only improve in the long run. Sarkozy left a country in ruins (why do you think he was not re-elected?). Holland has some Augean stables to clean out.

[Dr Mordrid]

.....The only real way left is by increased taxation and Hollande's view is that it must be done by taxation of the 2% or so of the population with obscene incomes, while not increasing taxation of the other 98%. Not earth-shattering!.....

Shortsighted. This only works so long as "the rich" have no better place to go, and they do - places with lower taxation, more encouragement of the entrepreneur, a less militant unionist attitude etc. Pressed too hard these folks are the most capable of mobility and will vote with their feet. Where does that leave the French coffers?

[Brian Ellis]

Exactly, which is why US offshore residents have been attacked by their own authorities for trying to hide their assets and being taxed on them. Residency elsewhere does not equate to domicile. The UK is another country that differentiates them and it is extremely difficult to lose UK tax domicile and retain UK nationality, dual-taxation treaties notwithstanding. The conditions include:
- no assets or liabilities in the UK
- no bank account in the UK
- no income in the UK including retirement or other pensions, annuities)
- all taxes due fully paid up
- no immoveable property in the UK
- proven residency outside the UK for >10 years
- proven taxes paid to all your countries of residency
- visits to the UK limited to 181 days in 5 years
- proven non-stop residency in one non-UK, non-Sterling country for a minimum of 181 days in any 12 month period over the last 5 years
- a helluva lot of argy-bargy, usually lasting at least a year

Been there, done that, worn the T-shirt! I left the UK in 1963 and was officially resident in Switzerland until 1998, when I transferred to Cyprus. Both countries have double-taxation agreements with the UK, so I was income-taxed where I was living. However, I was still liable to e.g. death duties on received bequests in the UK to the UK and various other taxes and also on non-taxable income in the country of residence and also death duties on my estate if I died, as these did not fall into double-tax agreements, so I would be taxed in both countries. There were many others. As I felt liable, I opted out of the UK tax domicile. A 5 kilogram file of paper resulted before they accepted it in 1990. Even so, it didn't end there. I was a majority shareholder in a Swiss corporation which had a fully-owned UK subsidiary. I entered them into voluntary liquidation in 1999. The Swiss company was liquidated in 2001, with the UK one's shares transferred into my name except for 2 shares held by statutory directors/liquidators, because the bureaucracy in the UK took much longer. It was finally liquidated in 2004 and I received most of the assets in cash, a few thousand pounds sterling, here in Cyprus. I'll be damned if I didn't receive a tax demand from the UK within one week. I told them to stuff it but it took 6 months before they accepted that I had no UK tax domicile and hadn't had for more than a decade.

The point is that residence does not abstract one from tax domicile so rich Frenchmen fleeing the country are still liable. Madame Betancourt (sp?), Alain Prost, Johnny Halliday, and many other richissimo Frenchmen resident in Switzerland, receive special tax agreements in the country because they have tax liabilities paid in France (also Frenchmen in Belgium).

[Marshmallowman]

Not surprizing. The reason that these socialist countries in Europe are in trouble is that there is no one to steal money from any more. The citizens are taxed to the hilt, the banks have billions in bad loans and no one wants to lend them any more money. Guess the next thing they will want will be US foreign aid..

I do believe the rapant moronic extreme capitalist banks just used the GFC to steal a sizable percentage of the total global wealth from every citizen on earth... please correct me if I am wrong