Draconian Cash Controls Are Coming To France

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French Prime Minister Jean-Marc Ayrault himself presided over Monday’s meeting of the National Anti-Fraud Committee—“a first for a head of government,” he said at the press conference afterward, to hammer home just how important this was. But he wasn’t worried about run-of-the-mill fraud that might fleece some old lady of her life savings. He was worried about people not paying their taxes.

He is desperate. In its just released annual report, France’s state auditor, the Cour des Comptes, told the government that it was dreaming. Its forecast of 0.8% growth for 2013 was way high. Try 0.3%. And forget about the budget deficit target of 3% of GDP, which had been based on that illusory 0.8% growth. And even if growth came in at 0.8%, the deficit would still be above that all-important 3%.

To get to the deficit target, the government had raised a slew of taxes to extract another €32 billion this year from households and businesses that are already gasping for air. Now “absolute priority” must be on bringing down spending, admonished Didier Migaud, First President of the Cour des Comptes, when he presented the report.

But spending cuts—whether corporate welfare projects or social programs—would be highly unpopular. Hence, the government’s emphasis on fighting tax fraud. Some estimates put tax fraud in the range of €60 to €80 billion per year, others at half that. Either way, a free gift. If the government could just get its hands on that money.

So Ayrault trotted out his national plan, a 20-page document that outlined his all-out effort to go after any kind of behavior that could possibly deprive the government of those sorely needed euros. A seamless fit for France’s principle: squeeze hapless “fiscal residents” like lemons to get their last drop of juice—fiscal residents, because citizens or foreigners who live in France only part of the year and pay taxes in some other country escape income taxes in France.

Stuffed into that 20-page national plan is a draconian tool: prohibiting cash payments of over €1,000 per purchase. The current threshold is €3,000. It’s urgent. He wants to get the process started soon so that “a decree and legislative measures” can be finished by the end of 2013.

Two crisp 500-euro bills and a single coin: voilà, an illegal transaction. OK, most cash transactions fall below that limit. But used cars, for example, might not. Between individuals, a cash transaction protects the seller. Otherwise, a trustworthy girl buys your car, signs the documents, hands you a check or initiates an electronic payment, and drives off. By the time you realize that the check bounced or that the electronic transfer didn’t go through, the car is on its way to Russia.

But the limit would only apply to fiscal residents. In a nod toward the wealthy and not so wealthy that the government has driven into fiscal exile, Ayrault included an exception: people, citizens or not, who are fiscal residents of a country other than France would be able to pay €10,000 in cash per purchase, down from the current €15,000 limit.

It will doubtlessly be called the “Depardieu exception.” Iconic actor Gérard Depardieu sought to establish a residence across the border in Belgium to escape the oppressive taxes at home. Then suddenly, he obtained a Russian passport, a “defection” that caused a whirlwind of anger, derision, support, and laughs. But Russia does have a flat 13% income tax.

People like him, when they’re in France, will still be able to pay for high-end girls in cash. The rest must use another payment method, anything from smartphones to checks. But they leave indelible electronic skid marks. Companies that process the payments retain personal and transaction details that form a seamless record over time. And copies of these details are handed to the government, either upon request or automatically.

With this law, the French government will be able to tighten the vise on its people one more turn, restricting their freedom of choice (how to pay), wiping out any privacy in those transactions, and imposing another layer of government control. Once people have gotten used to the €1,000 limit—based on the great principle of incrementalism with which restrictions of freedom come to pass in democracies—the vise will be tightened further, until the government can document every purchase made by “fiscal residents.”

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