Super Sarko's Kryptonite

The tax hike that dared not speak its name was meant to be a secret.

The new superhero of the Right, French President Nicolas Sarkozy, was planning to finance a promised payroll tax cut by raising France’s Value Added Tax (VAT) the French equivalent of Australia’s GST.

Realising this would be deeply unpopular, Sarkozy instructed his ministers not to talk about the plan until after the second round of the French Parliamentary elections, which were held on Sunday, 17 June.

However, word leaked out when Jean-Louis Borloo    (the Minister for Ecology and Sustainable Planning and Development) confirmed that the hike was under consideration shortly before the poll.

This was a huge blunder. At 19.6 per cent, France’s existing VAT is already almost twice as high as Australia’s GST. And it was pure kryptonite for Super Sarko. Even he knows he can’t win votes by taxing shoppers more just to give bosses a tax break.

Caught out, the President tried to placate angry voters with a desperate statement saying that he would not raise the VAT it if it added to inflation.

The result of Sunday’s vote, was assessed by France’s conservative newspaper Le Figaro as a ‘Yes, but’ outcome for Sarkozy, the new superboy of the rambunctious Right around the world. His conservative Party, the Union pour un Mouvement Populaire (UMP), was predicted to take 400 seats in the 577-member French Parliament. Instead, it won ‘just’ 313 seats. Its main opposition, the Socialists, won 206, and the Communists and smaller Parties will share the other 58 seats.

Politicians on several sides claimed victories (of sorts) after the vote, but Sarkozy and his conservatives still have a comfortable majority to rule France over the years ahead. The result, though, was not the ‘blue tsunami’ that many analysts expected.

The relative success of the Socialists also came at a price. Conservative sub-editors, for once, had some justification for their all-time favourite headline, ‘Left Splits.’ That’s because the Socialist leader Ségolène Royal announced just hours after the election result that she and her long-time partner, Party machine man François Hollande, would no longer be an item.

There were other reasons for Sarkozy’s unnecessary early setback.

Pride and impatience played their parts. The new President has hardly spent a day at his desk since he took up his post, just weeks ago. He has already visited several countries in Europe, pushing for a new, slimmer Constitution for the European Union. Sarkozy also caused some embarrassment when he suggested a six-month delay in UN talks on the future of Kosovo. A senior US diplomat, working in this troubled field, growled that ‘time is no-one’s friend’ on this matter.

Sarkozy showed signs of impatience, too, when he called a special summer sitting of the French Parliament to press his economic and tax reforms. Having done that, he was perhaps naïve to expect that word of his plans to hike the VAT would not leak. Political Parties are rarely watertight.

The price he will pay will not just be a lower than expected Parliamentary majority. Sarkozy also lost one of his most experienced allies, in former Prime Minister Alain Juppé, who was to have been his Energy and Environment Minister. Juppé resigned from Parliament after losing his seat in the 17 June vote.

Another key ally, Jean-Louis Bruguière, who made his reputation pursuing terrorists as a powerful investigative magistrate, also lost to a Socialist rival.

Traditional voter reluctance to give too much power to any politician played a part in Sarkozy’s setback. Nor can voter fatigue be discounted. The voters who turned out to support Sarkozy for President just a few weeks ago might not have been the ones who gave him a slight slap yesterday. The French have now been urged to vote no less than four times in just two months. Voting is not compulsory in France, and it’s a big ask to get people out that often on lazy Spring and Summer weekends.

A word of caution about Sarkozy’s bold new plans for economic reform.

With growth at just 2 per cent per annum, unemployment above 8 per cent and a Budget deficit equivalent to 2.9 per cent of its GDP, France is not one of Europe’s powerhouses, even though its inflation rate, of 1.3 per cent, is low.

French ingenuity, technology and the skills of its entrepreneurs are all formidable, as is the care that goes into the quality French products, from brandy to high fashion. However, the high levels of protection offered, not only to French farmers, but to much of French industry as well, are stifling.

Sarkozy has particular problems in economic management. The European Union’s currency, the euro, is beyond his direct control. So a quick, dirty devaluation to boost French exports is not possible. The level of French Government spending has already been placed on watch by his conservative EU partners.

Yet it is difficult if not impossible to spur a flagging economy by tax reform, alone. So, what economic lever does Sarkozy have left? Cutting protection, is the obvious one, but our bold gendarme is not very bold in this area at all.

Huge US and EU farm subsidies are the heaviest burdens in world trade saddlebags at present, and there are obvious opportunities to throw out at least a little of this dead weight.

But France is having none of it. Its negotiators are already warning that France will, once again, veto talks on a global free trade deal if it is pushed too hard in the area of farm subsidies. Their keyword, as always, is ‘Non!’

Perhaps there is finally a respectable way out: pay French farmers for the real work they do preserving the absolutely beautiful French countryside.

This idea, if started slowly, should be politically saleable particularly in a world deeply and rightly worried about the adverse effects of global warming. Australian trade negotiators have had their own word for this idea, for many years. They call it ‘decoupling’ that is, breaking the link between farm support and production levels.

No one in this rapidly warming world has a more important job than the custodians of the world’s precious, but fast deteriorating, environment.

Why can’t the world and Sarkozy in particular recognise the wonderful work French farmers do in environmental protection? Isn’t that just as important, or more important, than paying them for the wonderful wine and cheeses they produce?

Why should the work of these critically important environmental custodians remain unpaid?