France’s 0.3 percent growth in this year’s third quarter places it in direct competition with Germany’s currently recessive economy, now in its second consecutive quarter of contraction. Economists attribute part of France’s recent economic success to domestic consumption. In fact, exports account for only 31 percent of French GDP, as opposed to an average of 48 percent throughout the eurozone.
“In addition, France is benefitting from good policies at home”, said economist Florian Hense. “President Macron’s pro-growth reforms are apparently starting to pay off”, he added.
Despite evidence of positive economic growth, President Emmanuel Macron has had to face a fair amount of criticism over controversial decisions made by his administration surrounding certain reforms. In Macron’s first year in office, a decision was made to abolish a wealth tax, simultaneously making it easier for companies to hire and let go of employees. Although unpopular with many, particularly on the trade union side, the policy has reaped significant rewards – hiring rates have risen, foreign investment has grown, and unemployment has fallen to 8.5 percent.
The government’s next focus lies on pension and tax reforms. The former aims to raise the retirement age to 64 and harmonise France’s myriad of pension schemes and plans. Meanwhile, tax reform seeks to target both households and business. Macron plans to lower taxes on citizens by a cumulative 9.3 billion euros, partially in an aim to assuage those who have taken to the streets of Paris to protest a divided France, ruled by what they view as an ‘elitist’ government.
More comprehensively, a business tax reform intends to overhaul the system and allow France’s corporate tax rate to be lowered. The new plan will see the tax rate lowered by 2 percent for companies making revenue of 250 million euros annually, and by 3 percent for companies making less than this. The administration’s overall goal is to ultimately lower France’s corporate tax rate to 25 percent by 2022; the country currently has the highest corporate tax rate in the EU. President Macron has long been an advocate of EU tax harmonisation, particularly amongst eurozone countries, and this move signals France’s ambitions to bring the tax band closer to other European nations.
Meanwhile, France has gained significant revenue from its digital tax policy, which is expected to bring in 400 million euros this year from tech giants such as Google, Amazon and Facebook. These new measures were instigated at the beginning of 2019 and apply a 3 percent levy on all digital revenues from activities such as targeted advertising or digital marketplaces.
Protests in France
Despite robust economic metrics, high levels of protests relating to the policies of President Macron have been a running theme among French citizens. Earlier this month, approximately 800,000 people marched against the government’s pension reforms just months after the Yellow Vest protests, which had paralysed Paris on a regular basis. Then earlier this week, services were severely disrupted as doctors, teachers, and workers from across the labour sector took to the streets to lash out at Macron’s proposed retirement and pension reforms.
The president’s decision to slash wealth tax last year in an attempt to attract prosperity back to France was seen by many as the embodiment of the country that the Yellow Vest movement has protested against – one that targets the lesser paid to shoulder the burden of tax reforms, as well as the necessary transition to a green economy.
For Macron, grasping the horns of both pension and corporate tax reform may mean having to render benefits to the average French citizen sooner rather than later. Otherwise, Macron stands to be accused of using pension reform to weaken the country’s much vaunted social security model, while also extending a hand of help to big business.
As the halfway term of his presidency approaches, Macron will be eager to get these reforms through well before the 2022 election, and in the meantime quell social unrest by positioning France as the EU’s premier power in terms of economy, security, and foreign policy.