Tuesday, November 6, 2012

Gallois Theory

Évariste Galois was a young mathematician who wrote down his famous Galois theory on the eve of a duel in which he died. Louis Gallois, haut fonctionnaire and former head of EADS, has seen his own Gallois theory immortalized almost as instantaneously. He delivered his report yesterday; today the government accepted it, in essence if not in fine detail.

And so the Hollande administration has been brought in short order to a total reversal of its own stance on the "social VAT." One of its first acts was to abrogate the increase in the VAT enacted under Sarkozy, in the last days of the old regime. And now, barely six months later, Hollande will pay for the €20 billion tax credit to employers (in lieu of the elimination of payroll charges advocated by Gallois) by raising the VAT. Is it any wonder that voters are confused about where Hollande is headed? (And to add insult to injury, Mediapart claims, in a somewhat overwrought article, that parts of the Gallois report were written by a card-carrying member of the UMP--the horror!)

On the other hand, the destination is perfectly clear. Hollande has embraced a view of French competitiveness problems that is widely shared by economists, employers ... and politicians of the center-right. Unfortunately, it is a view also only recently attacked by Hollande himself as shot through with "injustice." The choice of the VAT over the CSG to finance the measure is apparently in part due to technical advantages but in part due to the plain political fact that a hike in the CSG appears on each employee's weekly pay stub, whereas a hike in the VAT is felt in a more diffuse way at the eheckout counter. And bear in mind that the financing also depends on an additional €10 billion in government spending cuts, on top of spending cuts already promised to reduce the budget deficit. The arithmetic of the Hollande budget is beginning to look as shaky as Mitt Romney's.

A propos of which, I must go off to vote for Obama before the lines get too long at the polls.

1 comment:

FrédéricLN said...

I voted for VAT in April (Bayrou announced it would need to be raised) and I support Obama. So, I'm happy with the outcomes today!

But the VAT increase is somewhere between "tiny", "ridiculous" and "of no effect" (4 o/oo…). And the "crédit d'impôt" is as complicated as Obamacare, where simple changes looked so easy to make (why are employers still paying the family allowances? What relationship between large families and workplace?)

From our center position (not center-right ;-) ) the move is is the right direction. But so tiny and confused that we wonder whether that meets the challenges. I'm quite sure that doesn't. But i understand politics are often made of slow moves, even in crisis times.