France’s President Nicolas Sarkozy likes to present himself as Captain Courageous, a leader who takes the hard decisions from which his predecessors so often shrank. It is certainly a brave man who would increase France’s value added tax just ahead of a challenging presidential election.

The government is planning to cut the heavy social charges which weigh on the competitiveness of French businesses, while making up the shortfall in welfare funding with a “social” increase in VAT. The idea is that this would make French products more competitive, and imports costlier – a sort of pseudo-devaluation.

Social charges do weigh on the competitiveness of French companies. On top of every €100 of wages paid, they have to add €50 in charges, against €39 in Germany. Companies thus contribute to a higher proportion of the welfare system than in many other countries, even to family allowances. It makes sense to address such anomalies. But the choice should not be whether to tax companies or consumers more. The government should also consider the underlying sustainability of France’s generous welfare system.