The French word for taxation

For those who are not so immersed in public economics, it is safe to say that most people agree Goverment (big G) should be as small and efficient as possible, subject to meeting the needs of its electorate. When it interferes with an otherwise unencumbered market, it should be for specific reasons: information asymmetry, externalities, etc. – poor price signalling, generally.

Along the way, Government should institute, as agent for the economy as a whole (now and future), policies that secure sustainable, stable long-run economic growth (increasing technological change, increasing labour productivity, increasing Efficiency with respect to the use of finite resources, etc.).

All of which serves to make this article in the International Herald Tribune very amusing:

Sarkozy proposes taxing new technology to finance the old

In a move that could profoundly reshape the media landscape in France, President Nicolas Sarkozy on Tuesday proposed banning commercials from public television and making up for some of the lost revenue with a first-of-its-kind tax on the Internet and mobile phones.

A government tax on Internet connections would be virtually without precedent and could be politically controversial, given that public policy experts say that Internet access drives a country’s economic growth and productivity.

In France, competition for Internet customers is intense, resulting in prices that are well below those of elsewhere, and an “infinitesimal” tax would presumably not discourage potential subscribers. The French pay an average of 37 percent less than the OECD average, or $36.70 a month as of October, compared to $49.36 for all 30 countries belonging to the group.

The share of residents with fast Internet connections in France is also slightly higher than elsewhere – 22.5 subscribers per 100 inhabitants, compared to 18.8 for the OECD as a whole.

But policy experts mostly advise making the Internet cheaper and not weighing down its growth with extra charges. The U.S. Congress last year extended a federal moratorium on Internet taxes for the next seven years.

While it is far from widespread, there are a few other examples of government levies on new technologies or communications to help older ones. In Europe, many countries tax blank storage media like CDs and devote that money to support music. Turkey and South Korea have also used telecommunications taxes to raise money for other industries.

Sarkozy’s proposal was part of a dense salvo of measures fired off in a New Year’s speech aimed at redirecting the focus from his Hollywood-style love affair with the Italian singer Carla Bruni to his vision for France.

In the 45-minute speech, Sarkozy declared the death of the 35-hour week, suggested that large companies may have to double or triple the part of their profit they are obliged to share with employees and vowed to replace gross domestic product with a more holistic indicator of economic welfare that he has commissioned from two Nobel laureates in economics, Amarthya Sen and Joseph Stiglitz. He also said that he would put a state bank in charge of defending French industry against sovereign wealth funds and other financial predators.

They had it at the title, really. Taxing new technologies – that are popular – in order to bolster old technologies – that are not – is not a great way to go about things. It’s a good way to raise money: demand for internet access is going to be fairly inelastic, at least for the people using it. Getting that ratio reversed would make a lot more sense, though, and a tax won’t contribute at all to Middle France’s willingness to embark on new technology.

The tax on blank media is also a poor comparison: blank CDs are almost guaranteed to be used to copy protected music/film. The internet? Not so much. I don’t like that sort of equivalency (and I’m welcome to start my own newspaper, I know).

The two things that are most interesting, yet received the least attention in the article, are this apparent “GDP plus” measure of well-being and welfare, which will be very interesting to observe, as well as the plan to set up a defense against predatory behaviour by Sovereign Wealth Funds. The latter is a little paranoid, I think, but then France is fairly high on the list of xenophobic economies.


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