Sunday, September 14, 2003

Chirac's Tax Cut

So the French have finally decided to go the whole hog. It's cut and be damned. Of course Chirac's cut is very different from the Bush one. This is short term expediency, in the French context it may even help. But it sure puts the stability pact in a tight corner. And if the growth doesn't materialise as anticipated next year? It would also have been nice if the euro-group ministers could have reached some agreement about it first, instead of France simply going it alone. This could be short term effective and long term damaging in another sense, that of euro-cohesion. It will be interesting to see whether this has any impact on the Swedish vote.

France confirmed its status as the rogue nation of the eurozone's public finances on Thursday after prime minister Jean-Pierre Raffarin decreed a 3 per cent cut in income taxes that will put further pressure on the country's budget deficit. The decision reflects the fact that French president Jacques Chirac, who promised to slash income tax by 30 per cent over five years in his 2002 election campaign, has been lobbying his government for the largest possible cut in order to "return some oxygen" to the economy. Despite the fact that a further clash with Brussels is now inevitable and that even his own finance ministry officials had warned that a one per cent cut in income tax was the most the public purse could afford, Mr Raffarin has rallied to the position of the French president.
Source: Financial Times

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