Thursday, December 6, 2018

The problem in France

France’s protesters are part of a global backlash against climate-change taxes

France suspends planned fuel tax to 'bring back peace and calm’

French Prime Minister Edouard Philippe said Dec. 4 that fuel tax hikes would be suspended in response to nationwide anger that he said has “deep roots.” (Reuters)

By Steven Mufson and
James McAuley

December 4, 2018

The single most effective weapon in the fight against climate change is the tax code — imposing costs on those who emit greenhouse gases, economists say. But as French President Emmanuel Macron learned over the past three weeks, implementing such taxes can be politically explosive.

On Tuesday, France delayed for six months a plan to raise already steep taxes on diesel fuel by 24 cents a gallon and gasoline by about 12 cents a gallon. Macron argued that the taxes were needed to curb climate change by weaning motorists off petroleum products, but violent demonstrationsin the streets of Paris and other French cities forced him to backtrack — at least for now.

“No tax is worth putting in danger the unity of the nation,” said Prime Minister Édouard Philippe, who was trotted out to announce the concession.

It was a setback for the French president, who has been trying to carry the torch of climate action in the wake of the Paris accords of December 2015. “When we talk about the actions of the nation in response to the challenges of climate change, we have to say that we have done little,” he said last week.

Macron is hardly alone in his frustration. Leaders in the United States, Canada, Australia and elsewhere have found their carbon pricing efforts running into fierce opposition. But the French reversal was particularly disheartening for climate-policy experts, because it came just as delegates from around the world were gathering in Katowice, Poland, for a major conference designed to advance climate measures.

“Like everywhere else, the question in France is how to find a way of combining ecology and equality,” said Bruno Cautrès, a researcher at the Paris Institute of Political Studies. “Citizens mostly see punitive public policies when it comes to the environment: taxes, more taxes and more taxes after that. No one has the solution, and we can only see the disaster that’s just occurred in France on this question.”

“Higher taxes on energy have always been a hard sell, politically,” said N. Gregory Mankiw, an economics professor at Harvard University and advocate of carbon taxes. “The members of the American Economic Association are convinced of their virtue. But the median citizen is not.”

In the United States — where energy-related taxes are among the lowest in the developed world — politicians, their constituents and their donors have repeatedly made that clear.

President Bill Clinton proposed a tax on the heat content of fuels as part of his first budget in 1993. Known as the BTU tax, for British thermal unit, it would have raised $70 billion over five years while increasing gasoline prices no more than 7.5 cents a gallon.

But Clinton was forced to retreat in the face of a rebellion in his own party. “I’m not going to vote for a BTU tax in committee or on the floor, ever, anywhere. Period. Exclamation point,” said then-Sen. David L. Boren (D-Okla.).

The state of Washington has also tried — and failed twice — to win support for a carbon tax or carbon “fee.” In 2016, the state’s voters rejected a ballot initiative that would have balanced a carbon tax with other tax cuts. In 2018, a wider coalition sought backing for an initiative that would have poured fee revenue into clean energy projects, job retraining and early retirement plans for affected workers. The fee would have started at $15 a ton and gone up $2 a ton for 10 years. It, too, failed.

To be sure, some climate-conscious countries have adopted carbon taxes, including Chile, Spain, Ukraine, Ireland and nations in Scandinavia. Others have adopted cap-and-trade programs that effectively put prices on carbon emissions.

Only around 12 percent of global emissions are covered by pricing programs such as taxes on the carbon content of fossil fuels or permit trading programs that put a price on emissions, according to the International Monetary Fund.

Policy experts say that to some extent the prospects of carbon taxes may depend on what happens to the money raised.

Using the revenue for deficit reduction, as was planned in France, is a no-no.

“Even in the best of times, carbon taxes must be carefully crafted to avoid political pitfalls,” said Paul Bledsoe, a former Senate Finance Committee staffer and Clinton White House climate adviser. “In particular, much of the revenue raised must be recycled back to middle-income workers. Macron’s approach put the money toward deficit reduction, stoking already simmering class grievances.”

Last year, a group of economists and policy experts — including former treasury secretaries James A. Baker III and Lawrence H. Summers and former secretary of state George P. Shultz — advocated a tax-and-dividend approach. It would feature a carbon tax of $40 a ton, affecting coal, oil and natural gas. The revenue would be used to pay dividends to households. Progressive tax rates would mean more money for lower- and middle-income earners.

“Because the revenue is rebated equally to everyone, most people will get more back than they pay in carbon taxes,” said Mankiw, who is part of the group. “So if people understood the plan, and believed it would be carried out as written, it should be politically popular.”

So far the group, called the Climate Leadership Council, has not been able to generate much support from members of Congress.

But Canada is about to offer a test case.

Prime Minister Justin Trudeau has unveiled a “backstop” carbon tax of $20 a ton, to take effect in January, for the four Canadian provinces that do not already have one.

Trudeau was elected partly on a promise of this sort of measure, but it’s costing him more political capital than expected. Conservative premiers oppose the plan, which looks set to become an election issue.

Trudeau’s policy, however, is designed to withstand criticism. About 90 percent of the revenue from the backstop tax will be paid back to Canadians in the form of annual “climate action incentive” payments. Because of the progressive tax rates, about 70 percent of Canadians will get back more than they paid. If they choose to be more energy efficient, they could save even more money.

The first checks will arrive shortly before Canadian elections.

Climate policy doesn’t only suffer from lack of enthusiasm. It also arouses the ire of right-wing populist movements.

Many of the people most angry at Macron’s tax come from right-wing rural areas. The German right-wing opposition party Alternative for Germany has called climate change a hoax. And in Brazil, a new populist president had indicated he will develop, not preserve, the Amazon forests that pull CO2 out of the air and pump out oxygen.

President Trump, who has said he does not believe climate science, also took to Twitter to say Macron’s setback showed Trump was right to spurn the Paris climate agreement.

“I am glad that my friend @EmmanuelMacron and the protestors in Paris have agreed with the conclusion I reached two years ago. The Paris Agreement is fatally flawed because it raises the price of energy for responsible countries while whitewashing some of the worst polluters in the world,” he wrote. “American taxpayers — and American workers — shouldn’t pay to clean up others countries’ pollution.”

Fuel taxes, however, generate revenue that stays inside home countries without going to pay for others’ pollution. And the Paris agreement placed much greater responsibilities on developing countries than ever before.

A member of Trump’s beachhead transition team at the Energy Department also took to Twitter to celebrate the collapse of Macron’s fuel tax plan.

“It’s easy for politicians like #Macron to lecture us about #ClimateChange because the elites don’t notice the economic hit. Working class people do. Working class French people are ANGRY about unnecessarily higher fuel taxes that are only a #virtuesignal,” wrote Thomas J. Pyle, president of the Institute for Energy Research — a group funded in the past by Koch Industries, the American Petroleum Institute and Exxon Mobil.

Jason Bordoff, director of the Columbia University Center on Global Energy Policy, said the celebration “would be reading too much into what’s happening in France.” That’s because Macron was already seen as favoring the rich over the working class, he said.

Nicolas Hulot, a popular climate change activist and Macron’s former environment minister, made national headlines in August when he resigned from Macron’s cabinet during a live radio broadcast. His reason: that the French government was more word than deed when it came to fighting climate change.

On the heels of the French government’s abrupt reversal on fuel taxes Tuesday, Hulot praised what he couched as a necessary political maneuver, albeit one that was not good for the environment.

“I welcome a necessary, inescapable, courageous and common sense decision in the current context, which saddens everyone,” he said, speaking on France’s RTL radio. But, he added, there would probably be consequences from the popular uprisings against the diesel taxes, which the government has now suspended for six months.

“All that is not good news for the climate,” he said.

The key, said Hulot, is not to impose action on climate change in a technocratic way, in a way that ordinary people do not understand. “The ecological challenge shouldn’t be against the French,” he said. “We need every Frenchwoman and Frenchman. On that, there is obviously a huge amount of misperceptions and misunderstandings.”

McAuley reported from Paris.

These 5 numbers explain why the French are in the streets
05 December, 2018

PARIS — President Emmanuel Macron of France is facing the toughest crisis of his leadership after three weeks of violent protests across the country. “Yellow Vest” demonstrators have demanded that the government give financial relief to large parts of the population that are struggling to make ends meet.

Prime Minister Edouard Philippe sought to calm the furore Tuesday (Dec 4) by suspending a planned fuel tax increase for six months, reversing a policy that had set off the revolt.

But it’s not apparent that this single concession can clear the streets.

The Yellow Vest movement — whose followers wear or display high-visibility vests used in emergencies — has morphed into a collective outcry over deeper problems that have plagued France for years: declining living standards and eroding purchasing power, both of which have worsened in the aftermath of Europe’s long-running financial crisis.

Here are some numbers that explain why France has erupted.


France, like other Western countries, has seen a deep gap grow between its richest and poorest citizens. The top 20 per cent of the population earns nearly five times as much as the bottom 20 per cent.

France’s richest 1 per cent represent over 20 per cent of the economy’s wealth. Yet the median monthly disposable income is about 1,700 euros (S$2,634), meaning that half of French workers are paid less than that.

Many of the Yellow Vest demonstrators are protesting how difficult it is to pay rent, feed their families and simply scrape by as living costs — most notably fuel prices — keep rising while their household incomes barely budge.

It wasn’t always this way.

Living standards and wages rose in France after World War II during a 30-year growth stretch known as “Les Trentes Glorieuses.”

Pay gains for low- and middle-income earners continued through the early 1980s, thanks to labuor union collective bargaining agreements.

But those dynamics unravelled as successive left-leaning French governments sought to improve competitiveness in part by compressing wage gains, according to French economist Thomas Piketty. Average incomes for low- and middle-income earners stagnated, growing by around 1 per cent a year or less.

The rich got richer, as top earners saw income gains of around 3 per cent a year. Increasingly generous executive pay for very high earners has helped tip the scale.

French workers are still better off than those in Italy, where real wage growth has been negative since 2016. Real wages there fell 1.1 per cent between the fourth quarters of 2016 and 2017, according to the Organisation for Economic Cooperation and Development.

But while real hourly wages are rising in France, that growth has come slowly, even more so since the end of the eurozone debt crisis in 2012.


France is the third biggest economy in Europe after Britain and Germany, and the world’s sixth largest before adjusting for inflation.

Visitors to Paris can come away with the impression that the glitz of the French capital means the rest of the nation is just as well off.

But French economic growth was stagnant for nearly a decade during Europe’s long-running debt crisis and had only recently begun to improve.

The quality of the recovery has been uneven. Large numbers of permanent jobs were wiped out, especially in rural and former industrial areas. And many of the new jobs being created are precarious temporary contracts.

Growth is key to improving working conditions for those who have been protesting. But while a nascent economic recovery before Macron took office has helped generate jobs, growth has cooled to a 1.8 per cent annual pace, in tandem with a slowdown in the rest of the eurozone.


The growth slowdown makes it harder to resolve another French problem: the large numbers of people out of work.

Unemployment in France has been stuck between 9 and 11 per cent since 2009, when the debt crisis hit Europe. Joblessness has drifted back down to 9.1 per cent today from 10.1 per cent when Mr Macron was elected. But it is still more than double the level in Germany.

Mr Macron promised to lower unemployment to 7 per cent by the next presidential election in 2022 and has acknowledged that a failure to do so could fan the flames of populism.

But to achieve that, the economy would have to grow by at least 1.7 per cent in each of the next four years, which is by no means certain, according to the French Economic Observatory, an independent research group.

Mr Macron has tried to re-energize the French economy.

This year, he demanded an aggressive overhaul of the nation’s rigid labour code to help employers set the rules on hiring and firing, and bypass long-standing restraints that discourage employers from hiring new workers. The provisions also limit unions’ ability to delay change, by allowing individual agreements to be negotiated at the company or industry level between bosses and workers.

Those reforms have helped draw companies like Facebook and Google to France. But they could take years to show results for average workers. And the reforms have angered workers who see a plot to strip them of hard-won labour rights in favour of big business.


As part of his plan to stimulate the economy, Mr Macron cut taxes for France’s wealthiest taxpayers during his first year in office, including by creating a flat tax for capital income.

But the centrepiece of the tax package, and the one that has drawn the most ire from protesters, did away with a wealth tax that applied to many assets of France’s richest households, replacing it with one that applied only to their real estate holdings.

That lowered by 3.2 billion euros the amount of revenue the state received this year.

There has been little evidence of a stimulus effect. Instead, Mr Macron has earned a reputation for favouring the rich — one of the biggest sources of anger among the Yellow Vest protesters.

While high earners have enjoyed tax breaks under Mr Macron’s fiscal plan, purchasing power fell last year for the bottom 5 per cent of households. The majority in the middle, about 70 per cent, saw no gain or pain either way, according to the French Economic Observatory.

Even before the Yellow Vests took to the streets, Mr Macron realised that support was withering, and his government tried to pivot toward those left behind in the previous round of tax cuts.

His 2019 budget, unveiled in October, will grant breaks next year worth 6 billion euros for middle- and low-income earners. It also includes an 18.8 billion-euro reduction in payroll and other business taxes to encourage hiring and investment.


While polls show that the Yellow Vests have the backing of three-quarters of the population, questions have swirled about how much pain the protesters are really experiencing — or how much of the outpouring can be chalked up to a centuries-old culture of demonstrating against change.

France protects citizens with one of the most generous social safety nets in the world, with over one-third of its economic output spent on welfare protection, more than any other country in Europe.

In 2016, France spent around 715 billion euros on health care, family benefits and unemployment, among other support.

To get that help, French workers pay some of the highest taxes in Europe.

While taxes are greatest on upper-income earners, France also has a value-added tax of 20 per cent on most goods and services. Together with the fuel tax that Mr Macron’s government just vowed to suppress temporarily, such measures tend to hurt the poor, while the wealthy barely notice them.


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