Hollande’s tax hikes backfire as they stymie French consumer demand

President François Hollande’s attempt to cut France’s budget deficit with tax increases may have boomeranged.

Hollande’s tax hikes backfire as they stymie French consumer demand

Not only did the increases fail to generate as much revenue as expected, they also wrought declining consumer demand, figures released yesterday showed. French tax receipts amounted to €284bn ($387bn) in 2013, up €15.6bn on 2012, though €14.6bn less than the finance ministry had predicted, France’s national auditor said in a report.

The added tax burden is weighing on households, with consumer spending unexpectedly falling 0.3% in April after declining 0.5% in the first quarter, national statistics office Insee said in a separate report.

“Retail sales are desperately weak,” said Dominique Barbet, an economist at BNP Paribas in Paris, who added that his second-quarter French growth forecast may need to be cut if demand doesn’t revive. “Higher social contributions and taxes are taking their toll.”

The data underscores Hollande’s struggle to simultaneously revive growth and squeeze the budget deficit. The Socialist president, who took office two years ago, has yet to benefit from two back-to-back quarters of growth and has been rewarded for his deficit-reduction effort by a downward spiralling of his approval rating to the lowest ever for a French president.

Hollande’s popularity has dropped to 18%, according to an OpinionWay poll published this month. The survey of 1,011 voters was at least the third this year to show Hollande at that level.

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