The French government on Wednesday unveiled plans to raise the retirement age from 60 to 62 and increase taxes on business and the wealthy to eliminate a gaping hole in France’s pay-as-you-go pension system.These are issues all OECD countries are going to face in the coming years: how do we pay for social programs, especially those that benefit older members of the population at the same time the number of people contributing into the system are declining. These are extremely difficult questions, not only from a moral perspective but from a political perspective.
The overhaul, which includes tax increases worth €3.7bn a year, is intended to return the pension system to balance by 2018, a year in which it is forecast to record a deficit of €42.3bn if not reformed.
However -- is this the time to do it? In an ideal world (in which politicians have an IQ higher than that of the average toaster) spending increasing in a downturn to limit the negative impact of the recession and decreases when the economy gets on track. As the economy expands, the government increases taxes/fees etc... to pay for the expenses incurred during the recession. However, are we far enough in an expansion to warrant these types of moves? My answer would be no -- especially with some EU countries looking at near collapse.
As I noted last week in this post the economy is still too fragile for these types of austerity moves. While the US has seen three quarters of growth, the unemployment rate is still too high and needs to be dealt with. Countries in the EU area are in worse shape from a growth perspective. This is simply not the time to be doing this.