Rising challenges for Emmanuel Macron

By Sylvie Corbet analysis

Emmanuel Macron yesterday scrapped a fuel tax rise amid fears of new violence. Photo / AP
Emmanuel Macron yesterday scrapped a fuel tax rise amid fears of new violence. Photo / AP

French President Emmanuel Macron has scrapped a fuel tax rise amid fears of new violence, after weeks of nationwide protests and the worst rioting in Paris in decades.

Protesters yesterday celebrated the victory, but some said Macron's surrender came too late and is no longer enough to quell the mounting anger at the President, whom they consider out of touch with the problems of ordinary people.

Macron has vowed to cut taxes and boost France's growth. A year and a half after he came to power, he is facing multiple challenges.

A country's economic indicators don't always match the public's perception of how their country is doing, but do help understand the popular anger.

Here is a look at the taxes that have become central to the "yellow vest" protesters' claims.

Tax burden
One of the French protesters' big complaints is that they are heavily taxed.

Official statistics support that claim. France was the most heavily taxed of the world's rich countries in 2017, according to the Organisation for Economic Co-operation and Development. The French Government's tax revenues last year reached 46.2 per cent of annual GDP.

Prime Minister Edouard Philippe acknowledges that taxes "have steadily risen" since 2000 and that Macron's Government wants to reverse that trend.

In particular, social security expenses — which pay for the generous healthcare system and pensions — are higher in France than other wealthy countries. As a result, France's poverty rate is also lower than in most European countries.

Overall, taxes are expected to decrease this year after Macron's Administration agreed on cuts. The protesters, however, complain specifically about a tax on fuel that Macron wanted to increase.

Fuel tax
Approved in 2014, under Macron's predecessor Francois Hollande, this tax is part of government plans to wean France off fossil fuels via small but regular tax increases.

Taxes represent about 60 per cent of the price of fuel in France.

The next tax increase was due to start on January 1. But in the face of the sometimes violent protests, Macron decided yesterday to scrap the tax rise next year. Protesters say the fuel tax hurts people in rural areas who rely on vehicles for work and transportation compared with wealthier city dwellers who rely more on public transportation.

Middle-class gains
In response to the protests, Macron's Government notes it has actually cut taxes for French people. However, they will mostly benefit middle-class people with jobs, according to the Institute of Public Policies, a watchdog.

This year's tax cuts focus on businesses, payroll and housing. The Government is trying to raise awareness of its efforts: Every employee salary slip must now have a line — written in large letters — detailing how much extra money the worker received thanks to the tax cuts.

While most employees benefit from the tax cuts, almost all French retirees are worse off. Macron has said pensioners must make "a small effort" to help workers.

Purchasing power
Many French protesters say they can't pay their bills due to the higher cost of living.

Consumers' purchasing power in France fell sharply after the 2008 global financial crisis.

But since 2014 it has been growing again, according to the statistics agency Insee. This year, a small increase of 0.6 per cent is expected, largely thanks to the tax cuts. Yet the figure is an average that hides disparities across society.

Macron's first reforms, like a cut to taxes on wealth, largely benefited the well-off, and this is cited frequently by protesters.

Wealth tax
The decision to slash a special tax on households with assets above €1.3 million ($2.15m) was meant to attract foreign investors. Macron, however, was quickly labelled by critics as the "President of the rich". Government spokesman Benjamin Griveaux lamented that the wealthy often decided to invest outside France because of taxes. "We want the money to come back," he said.

The Institute of Public Policies says French Budget measures for years 2018-2019 overwhelmingly benefit the 1 per cent of France's richest people due to the wealth tax cut.

It says the poorest 20 per cent of households will see their real incomes fall because prices for goods such as energy are rising.

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