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Text by Tony TODD

Latest update : 2012-08-30

Paris has announced tax cuts to ease the pressure on motorists in the face of rising costs at the pump. The German government and press insist the French have got it wrong, even if most drivers in Germany support it.

France’s Socialist government has come under a broadside of criticism in Germany for artificially lowering the cost of petrol and diesel at the pump.

French Finance Minister Pierre Moscovici announced Tuesday that the government and oil firms had agreed to split the burden of a six-euro-cent cut per litre for petrol and diesel over the next three months.

Paris insists that this temporary measure has been put in place to give the government time to work out a long-term strategy to keep the cost of fuel down.

And despite polls showing 78% of Germans favour a similar intervention, the German government and the press wholeheartedly rejected copying the French initiative.

“We do not believe that cutting taxes will have a lasting effect on reducing the price of fuel,” government spokesman Steffen Seibert said on Wednesday, adding that any positive impact on the French economy from the measure would be “very short term”.

“Lowering the cost of fuel is not the government’s job,” Seibert said.

‘Economically mired’

The German press also rounded on the French initiative, despite its popularity with the vast majority of motorists there.

Conservative daily Frankfurter Allgemeine Zeitung blasted Hollande for “wanting to protect everyone except for the rich” and said the move was a populist attempt “to make headlines with small and isolated measures.”

“And so France remains economically mired instead of reforming,” the paper’s editorial concluded.

The left-leaning Suddeutsche Zeitung, meanwhile, said the measure was “bound to fail.”

“Not only is it highly questionable in economic and environmental terms, but it is also socially unjust, because it only benefits drivers and not users of public transport,” the paper said in an editorial.

“And it will be largely ineffective because no doubt oil prices will rise again. Lowering taxes will have a marginal and short-term effect on consumers’ wallets.”

French criticism

The price cut was also criticised in France, with the head of the FNAUT consumer association Jean Sivardiere calling it “a stupid, short-term solution”.

“It will be hugely expensive and will not help drivers that much,” he told FRANCE 24. “It sends the wrong signal to the French, telling them that they shouldn’t worry about the rising cost of fuel.

“Instead, the government should be telling the French just how easy it is to use less fuel if you change your driving habits."

"For example, by following a few simple rules it is easy to reduce fuel consumption by 10% -- much more than the tax cut, which is temporary anyway."

“Why spend all this money on a measure that will have no long-term benefit?”

The opposition UMP also slammed the scheme to lower fuel cost: Secretary General François Copé called it “a gimmick” that “benefits the driver in the short term, but because it is being paid for with public funds, the taxpayer will end up footing the bill anyway.”

Boosting purchasing power

The French exchequer stands to lose around 300 million euros in lost tax revenue as a result of the tax cut.

The average price of a litre of diesel (which powers 80% of French cars) in France is 1.46 euros -- an historic high which is biting into the spending power of French households, an issue newly-elected President François Hollande said he was determined to tackle.

Lower purchasing power, as well as being a serious issue for households, is also undermining consumption, which in turn is damaging the French economy.

France, meanwhile, is suffering ballooning unemployment, which at just under 3 million is the highest it has been in 13 years. It rose by 41,000 in July alone.

The government’s response this week was to open the coffers with a huge spending plan to get young people in areas of high unemployment back to work.

On Wednesday, Hollande announced a plan to subsidise companies that hire employees aged between 16 and 25 for between one and three years, paying up to 75% of their salaries.

The government hopes the scheme will create 100,000 such “contracts for the future” in 2013 and a further 50,000 the following year.

The scheme will cost an estimated 1.5 billion euros a year.

France’s Socialist government, in office since June 2012, hopes to recoup its losses with a new top rate of income tax at 75%, announced in July, targeting France’s highest earners.

Date created : 2012-08-30


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