From politics to fiscal policy, French fumbles reflect the failure of European centrists

A country that is a byword for high-end luxury has an economy dominated by companies such as LVMH and Hermes and an over-extended state. (A request for additional funding to better protect the Louvre had been pending for some time.)

The trouble is the very wealthy in France use their clout to fight off higher taxes, despite effectively paying only half the average rate of income tax by shielding their wealth in holding companies. An economist’s proposal for a wealth tax on people worth more than €100 million has been derided by LVMH owner Bernard Arnault as a reckless attempt to “destroy the French economy.”

Since the snap parliamentary election in 2024 that weakened the government’s position instead of strengthening it, the Macron administration has had to rely on support from leftist parties to pass legislation. At that end of the political spectrum, melodramatic overreactions to reasonable reforms are hardly unusual.

The left has blocked attempts to reduce the generous holidays France is renowned for, even preventing the cancellation of two bank holidays. A government move to increase the retirement age to 64 from 62, aimed at reducing pension costs and the fiscal deficit, had to be postponed.

That deficit is now near 6% of GDP and well above the Eurozone average, beating Italy and Greece. Its widening is a function of large-scale state spending in the wake of the pandemic (and then of the energy crisis after Russia attacked Ukraine) and Macron’s tax cuts in 2018. Gross public debt as a percentage of GDP is about 113%, well above the Eurozone average.

If this sounds like a dispatch from a fantastically elegant foreign country falling on hard times, think again. Macron’s tax cuts for corporations and the wealthy are not dissimilar to India’s cut in its corporate tax rate to 22% in 2019. Since India’s tax cut has little to show for it in terms of boosting corporate investment, it ought to be labelled charity for the rich. An inheritance tax, even in unequal India, is rarely discussed.

At the other end of the spectrum, what are routinely headlined as handouts increase with every state election. This week in Frontline, economist Ashoka Mody, author of India is Broken, reminds us that it was the new working class in western Europe’s industrializing societies that helped build support for their welfare states, which focused on delivering health and education in a more equitable manner.

By contrast, the growth of private sector employment in India is chiefly in the gig economy. ‘Delivery executives’ with almost no job benefits manoeuvre through our clogged cities to somehow deliver at Olympian speeds promised by overhyped e-commerce companies valued in the billions.

Against this modern-day Dickensian backdrop, Mody argues, “India has replaced genuine welfare—education, health, justice and environmental care—with short-term handouts that buy loyalty but stunt progress. They siphon resources from public goods and keep the weak afloat yet vulnerable. (This) is dependency by design.”

France is characterized by similar cynicism as it faces the challenges of its dysfunctional political economy. Political instability has only increased since last year’s snap election that Macron hoped would undermine the far-right led by Marine Le Pen’s Rassemblement National. Now headed by the young Jordan Bardella, this party leads opinion polls in France. The wealthy, meanwhile, have voted with their trust funds and are moving cash to tax havens like Luxembourg.

They are responding—or overreacting, arguably—to a new French levy on 10,000 holding companies, whose dividends are often diverted to avoid paying taxes, that is likely to raise €1 billion. An additional tax on France’s 20,000 highest earners was expected to raise €1.5 billion. Another tax on corporate revenues of large companies has also been mooted.

Finance minister Roland Lescure has his work cut out. In ducking higher taxes needed to reduce gaping deficits, the very wealthy turn nomadic. This week, a tax lawyer in Luxembourg told the Financial Times that since the 2024 election, “brokers barely have to do any marketing work to get clients.”

Another expert said “crazy” amounts of money from rich sports people and entrepreneurs were flowing into Switzerland from France. This is akin to the outflow from the UK after its Labour government made changes to tax laws aimed at making those who classify themselves as non-domiciled in the UK pay a larger share of taxes.

France’s predicament mirrors the UK’s. Just as former prime minister David Cameron opted for the disastrous Brexit referendum of 2016 to call the bluff of Nigel Farage’s Reform Party, Macron and his allies have been obsessed with curbing the popularity of the far right. But unseemly policy rollbacks and their short-term political tactics since the 2024 election have had the opposite effect.

As the UK’s far right—helped by hysteria on immigration—basks in the same sort of popularity enjoyed by their counterparts in France, Europe’s centrist parties are floundering.

The author is a former Financial Times foreign correspondent