This story appears in the November 2, 2014 issue of Forbes. Subscribe
AT PRESENT FRANCE IS a good example of how not to run a country. President François Hollande says he's a socialist, but he has an upper-class lifestyle and refers to the working class as "the toothless ones," by which he means people who cannot afford to go to a dentist.
Hollande has raised France's income tax to 75%, and the result is an exodus of the hardworking and efficient. There are at present some 300,000 French young people living in London, where they can escape their nation's horrifying levels of unemployment--11% overall, about 25% in their age group.
The great majority of French people who are employed work 35 hours a week and enjoy six weeks of paid holiday. The bureaucratic obstacles to starting a new business there are pretty well insuperable. France's deficit is enormous and growing, and half of those employed work for the state and cannot be fired. Economic growth is nil or negative, and investment is at its lowest level in a generation.
France, in fact, is in danger of joining the "southern tier" of the euro zone--Greece, Italy, Portugal and Spain--countries that are chronically unable to pull their economic weight and teeter on the edge of national bankruptcy. Indeed, Germany is the only major economy in the euro zone that is still expanding, though it's doing so at only 1% a year.
France's appalling state should act as a dire cautionary example, especially to parties on the Left. Yet the British Labour Party--which, if polls are to be believed, will oust the Tories from government at next year's elections--seems bent on following in France's footsteps. Its leader, Ed Miliband, leads an impeccable private life, so England would be spared a similar embarrassment to Hollande's constant public rows with his mistresses. But Labour's electoral platform shows that in other respects the party has learned nothing from the French socialists' glaring errors.
In particular, Miliband hasn't grasped that high and punitive taxes are counterproductive and hugely destructive. He proposes to impose a "mansion tax" to finance improvements in the National Health Service. This foolish idea is designed to stomp on what is seen as a scandal: the fact that many high-priced houses in central London are kept unoccupied by their rich (often foreign) owners. Deplorable, perhaps, but it's part of the price of being one of the world's most desirable capitals in which the rich can invest. Their investment, in turn, drives Britain's prosperity as a whole and means its economic growth rate is among the highest of the major Western economies--a small price to pay, you might think.
Unfortunately, Miliband seems determined to discourage the very rich, especially foreigners, from buying property in London. He wants to impose his mansion tax on all houses worth more than £2 million, thus raising £1.2 billion a year, which would mean an annual tax of about £12,000 on such properties. In practice it would force middle-class taxes up to 60%--almost within reach of France's dreadful level.
MISGUIDED TAX
The inevitable result would be to kill British economic growth stone dead and provoke an exodus from London of the entrepreneurs and business founders who are responsible for Britain's prosperity. It would also cause widespread hardship and unhappiness.
Take my own case. I bought my house in London 30 years ago for £550,000, a sum I raised with great difficulty. It is now, thanks to the rise in house prices, worth much more than the proposed mansion-tax threshold. But my income has not expanded accordingly. On the contrary, I am now a pensioner and find it hard to pay my taxes at their present high level. An extra tax of £12,000 a year would force me to sell the house and move to the suburbs. Dislocation at my age--nearly 86--would be horrific. And my case is typical of perhaps 100,000 people living in the London area who would also be forced to sell their homes.
On the other hand, I doubt the rich foreigners who have houses in London would be indisposed. Therefore, the social implications of empty houses would remain, and the tax would fail in its primary purpose.
Nothing is a surer vote-loser than a completely new tax, whose impact is unknown and whose effects may be devastating. The mansion tax has already spread the seeds of doubt about Miliband's judgment and his administrative ability to run the country. It could be the millstone round his neck that drowns him. Let's hope so. One European country sinking into a morass of socialist folly is enough.
