The headlines are abuzz. People are protesting in the streets, Macron is proposing ways to increase French revenue. The debt is out of control, and grandmere is to blame.
Let’s back this up with data.
Starting with GDP per capita… France has the 25th highest GDP per capita in the world, tied with Canada. They have a higher GDP per capita than the United Kingdom. So France is not poor, and is actually wealthier than the austere United Kingdom.
But what about their debt, which sounds like its reaching Greek levels? France has a debt per GDP ratio of around 111% right now… 10 points below that of the United States. That’s certainly high… but it shouldn’t lead to a debt crisis.
France currently has a government deficit of -2.55%, so lower than that of the United Kingdom and the United States.
So why do we keep hearing about France being in economic crisis and not the United Kingdom, which is doing worse than France on almost every measure, with a lower GDP per capita and a higher debt per GDP ratio?
France has had left-wing presidents since 2012, and yes, Macron is left-wing. Their presidents have been consistently Europhilic, and none of them have been supporting Russia. They all support anti-money laundering legislation, and support Ukraine. France has remained in the Schengen Area and the European Union. France has had relatively stable government. Macron has started to talk about needing to reduce spending, by giving into the right-wing media, and this is a major mistake which could collapse his government.
The United Kingdom has had right-wing prime ministers since 2010, and yes, Keir Starmer is right-wing. All of them are transphobic, Euroskeptic, and in favor of austerity. So given that they have towed the line to the right-wing, the United Kingdom is not going to be criticized even as their GDP per capita has remained below that of France for over a decade.
France can reduce its government deficit though. By looking at France’s budget, we can see that the largest expense is in tax refunds, which primarily go to wealthy people, and then pensions. By readjusting the tax code, increasing taxes on wealthy people by reducing tax credits, and increasing the corporate income tax while increasing tax credits for investments in capital (capital is any item which is used to increase production), France could close its budget deficit without harming important investments in education.
Another proposal being floated is to eliminate holidays in order to increase GDP. So with a $65,000 GDP per capita, the average person in France makes approximately $30 per hour (rough estimate, to illustrate a point). If France were to reduce 2 holidays and French people were to work 16 more hours, their GDP per capita would increase by a whopping $480 or 0.7%. That’s pretty underwhelming actually.
A better way to increase GDP per capita would be to make French workers more efficient by investing in more capital. In other words, increase productivity. If France were to increase productivity by only 1% in a year, that would increase GDP per capita by about $650. That’s a far more effective strategy compared to axing holidays, which is just populist posturing. Improve technology, increase productivity, and France’s GDP will grow. If they increased hourly earnings by just $1 they would increase their GDP per capita by around $2000.
As real economists say, productivity is the key to economic growth. Not this nonsense about axing holidays which is said by pundits who know nothing about economics.
France could lower its burden of pensions by moving more towards a Superannuation system like in Singapore and Australia. Give people the option to continue with the maximum benefit system they have or use superannuation. This would reduce government liabilities in the long-run as France continues to be an older society.
But in reality, even as the media keeps harping on how France needs to cut its budget by slashing payments to pensioners, I do not believe this is right way to do it. France should absolutely move to a system to provide more benefits to seniors while reducing the cost to the state, and superannuation has successfully done this in Singapore and Australia.
But in this case, I think the media has taken a minor issue and blown it way out of proportion.
Which is a problem because Brexit on the other hand is a major problem which the data keeps bearing out, and a lot of the media doesn’t fully cover what an absolute economic disaster Brexit has been, instead going into purity politics about how France is such a pariah state for their welfare system. I believe that is the real scandal here.