France’s New Reform Programme

By the strangest of ironies, the French electorate last week choose a reforming right-wing President, over a more conservative left-wing contender. It remains to be seen if the programme of reform outlined by Nicolas Sarkozy during the campaign is actually implemented, but there are some proposals of interest to expats and prospective buyers of French property. One notable proposal concerns the abolition of gifts and inheritance tax between family members, for all but the rich. Whilst the potential inheritance tax liabilities of international buyers are often somewhat exaggerated by financial advisors, there is no doubt this will greatly ease the anxieties of those planning to buy in France. It is also proposed to offer mortgage tax relief on the purchase of the main home. Where the householder does not pay income tax, then assistance will be granted towards the purchase of the family home. Once again, no details are available, but it is likely that the level of assistance will be capped, and may well be restricted to first-time buyers. If one effect of this new measure may well be to increase house prices then, by way of balance, Sarkozy proposes to maintain a large house building programme in order that prices can be kept under control. There are no proposals for increases in taxation, but neither does it seem will public expenditure rise, unless financed by economic growth. Indeed, Sarkozy has committed himself to a reduction in the substantial public debt, with a clear signal that current expenditure will only be financed from current earnings, not from borrowing. On this basis, whilst there is a commitment in the programme to maintain the high quality of the health service, there is a hint that less of the expenditure is going to financed by the State, and more of it from individual insurance based contributions. The flagship proposals concern the world of work. Despite some press reports to the contrary, Sarkozy is not proposing to abolish the 35 hour French working week, but to create fiscal incentives for those who want to work more hours. He is also proposing a reduction in employer and small business social security costs. There will be incentives for the retired to continue to work without loss of pension entitlement, and specific measures to get unemployed young people and one-parent families back to work. At a broader economic level, whilst Sarkozy is firmly committed to Europe, he is also strongly committed to defending French interests in Europe. Accordingly, the EU can expect few concessions regarding continued support for French agriculture, and he will be seeking support for a more protectionist Europe against ‘unfair’ trading practices of other countries. Somewhat curiously, he also proposes a 'Mediterranean Union' involving countries such as Spain, Italy and Greece. He is opposed to trying to reintroduce a new European constitution, lost after the French and Dutch electorates voted against it, but he supports some changes to the institutional framework to allow the newly enlarged Europe to function more smoothly. There will also be tougher controls on immigration, although these will not affect those relocating from within the EU. Thus, a limit will be placed on the number entitled to enter the country each year, each of whom will be required to sit a test in the French language. They will also be required to demonstrate they will be able to live in France without recourse to public funds. There are a range of other proposals relating to trimming the size of government, making it more accountable to Parliament, tougher law and order policies, tax incentives for the environment, and greater priority to higher education and research in order to assist in economic development. For those concerned about the seemingly interminable strikes that hit the French transport system, Sarkozy is proposing to introduce a law that guarantees a minimum public service in the event of strike action. It remains to be seen if, in the face of likely strike action by the transport unions, he will be able to go ahead with this proposal, or that it will be operational, even if it is enacted. Moreover, there are parliamentary elections in June, in which Sarkozy's party will need to win a majority in order that he can legislate effectively. We cannot yet discount the prospect that the mischievious French electorate will force a radicial right-wing President to appoint a socialist or centrist Prime Minister.