France Says No Tax Hikes as Nations Weigh How to Pay Virus Bill

(Bloomberg) -- In a rush to reinvent economic and fiscal policy for the post-pandemic world, France is vowing to not repeat history: no tax increases this time, Finance Minister Bruno Le Maire says.

With European economies reopening from over two months of shutdowns, governments are grappling with the challenge of accelerating a shaky recovery while drawing plans to pay the bill for the trillions they’re spending to protect jobs and companies.

In the aftermath of the global recession and the ensuing euro-zone crisis, many pursued spending cuts to get a handle on debts. That was a struggle in France, which relied more on tax increases.

“Today we have taxation that is very heavy, among the highest of all developed economies so good sense is not to increase pressure on French people,” Le Maire said on French radio RTL. “Yes, debt will have to be paid back, but not by raising taxes -- by raising growth.”

It’s a debate playing out across advanced nations as governments ready stimulus packages to get their economies motoring again. The European Union’s proposal for a 750 billion-euro recovery fund includes several new taxes to help repay the money. In the U.K., the government is examining the possibility of raising taxes to pay for the health service and sees support for an increase in corporation tax.

Le Maire’s reliance on a rapid acceleration in growth may prove too optimistic.

He’s repeatedly said there’s a slow and difficult recovery ahead from a recession that’s likely to be deeper than previously anticipated. The government now expects an 11% contraction this year, more than the than the -8% forecast in April’s emergency budget.

While a rebound is likely with the end of lockdowns, economists don’t expect the kind of booms that helped repay similarly gigantic debt piles after World War II.

“It is difficult to avoid the conclusion that, once again, the taxman cometh,” HSBC special adviser Stephen King said in a note Monday. And French economist Thomas Piketty says history shows such measures are the best way of bringing down huge public debt.

For the French government, however, putting the burden on taxpayers would mark a complete reversal of the policy course that Le Maire says had begun to pay dividends just as the crisis struck. After taking office in 2017, President Emmanuel Macron pushed through pro-business overhauls in quick succession to make labor more flexible and reduce tax on wealth and capital.

“We must continue with the transformation of the French economy,” Le Maire said. “It’s certainly not by changing direction that we’ll get good results.”

In September, Le Maire will present another stimulus plan that he said would cut high taxes French companies pay based on production -- a reform that was debated before the pandemic struck.

Until then, the government will keep spending on emergency support for small companies, and only gradually wind down its furlough program. It’s also announced specific support plans for the car and tourism industries and will detail plans for the aircraft industry next week.

“Economically and socially, the hardest times are ahead of us,” Le Maire said. “The shock of the crisis was extremely violent in France.”

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