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Wednesday, January 01, 2014

Labour's role model performs a u-turn

When François Hollande became French President, the Labour Party hailed him as an economic saviour. Here was a man who was going to demonstrate the real alternative to austerity by taxing the rich and spending his way out of recession. What a disappointment he must be to them. What alternative do they now have?

According to the Financial Times, the French President has now pledged to cut public spending, lower taxes and reduce labour costs for business in a bid to convince a sceptical public that he remains capable of regenerating France’s stuttering economy.

The paper says that Mr Hollande’s problem is that since he took office in May 2012, he has introduced a series of big tax increases as the main tool to reduce the budget deficit, prompting several demonstrations across the country and undermining the credibility of his new promises to shift the burden to spending cuts:

On Wednesday, an increase in value added taxes came into effect, with the main rate rising to 20 per cent from 19.6 per cent and the intermediary rate, covering hotels, restaurants and public transport, rising to 10 per cent from 7 per cent. These are part of an overall €12bn hit to households in new taxes this year.

The VAT increase is mainly to finance a €20bn tax break for companies to help reduce their high labour costs. But business leaders continue to clamour for a direct cut in social charges on employment to restore weak profit margins and their foreign competitiveness, financed by much more ambitious cuts in public spending.

The government is promising €50bn in spending cuts over the next three years, saying there will be no further rises in taxation from 2015.

If Ed Miliband and Ed Balls are now to put forward an alternative to George Osborne's austerity measures, introduced because of the mismanagement of the previous Labour Government, then they are going to have to find a new role model.
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