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France's "Fiscal Shock" Said To Stifle Economic Growth

by Ulrika Lomas, Tax-News.com, Brussels

08 January 2014


French macroeconomics research institute Coe-Rexecode has concluded that the painful "fiscal shock," meted out by the Socialist Government in 2013, merely served to stifle any signs of economic growth in France, as the think-tank had accurately predicted in its last winter economic forecast.

Furthermore, the institute emphasized that the EUR30bn (USD40.9bn) in tax rises implemented last year failed to meet the Government's intended objective of significantly lowering the public deficit, as the tax onslaught yielded little in fiscal revenue for the state.

Indeed, preliminary estimations have confirmed that the tax barrage was – as anticipated by many experts – highly ineffective. According to Coe-Rexecode, the Government reduced the public deficit in 2013 to the tune of just 0.7 percent of gross domestic product (GDP), or EUR15bn, despite the fact that additional revenue amounted to EUR38bn. The institute maintained that the disappointing results are attributable to poor budgetary and fiscal decisions, which have proven unfavorable to growth.

Finally, Coe-Rexecode revealed that GDP increased by just EUR28bn in 2013, while primary public spending rose by EUR26bn. Despite the wave of tax rises, an increase in Government spending coupled with economic stagnation, lead to higher public debt of EUR83bn last year, it said.

Concluding, the body alluded to French President François Hollande's pledge to reduce public spending and to lower compulsory levies in France in 2014, underscoring that this new strategy will be more favorable to growth. The Government must adopt a pro-growth policy, eradicate the excesses of 2013 and make the right choices, the institute ended.

TAGS: tax | economics | gross domestic product (GDP) | budget | France

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