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Richard McCreery's Business Blog
RLTV 19
Mar 10
Riviera based Independent Investment Adviser, Richard
McCreery, has joined the expanding RivieraLife.tv
team as Business Editor. Richard publishes a weekly Finance Blog every Friday with
informed comment on topical financial matters relevant to
residents and businesses on the Cote d'Azur. |
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Do you ever get the feeling that life is getting rapidly more
expensive? The French Riviera has always been a relatively
expensive place to live and France as a whole, compared to other
countries, appears to be a victim of rising prices even with the
economy still weak. There are several reasons why this might
actually be the case. |
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Taxation in France is quite high and is probably set to go
higher in the next few years in order to pay down the deficit.
TVA is higher than the UK at 19.6%, we have a wealth tax that
many other countries don’t have and social charges on income
(another form of taxation) are extremely high, especially for
the self-employed. However, where the average person really gets
hit is in ‘upfront’ taxes on the two biggest purchases we make
during our lives: buying a property and buying a car. |
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The notaires fees we pay when buying an older property are
between 7% and 10% of the purchase price and since property
prices have doubled during the past 10 years, a much larger
increase than the average salary, this is a huge chunk of money
to pay to the government for the privilege of changing your
abode. It is no wonder that there has been a significant
slowdown in activity in the property market when you also
remember that most lenders will ask for a deposit of at least
15-20% of the property value. It is incredibly difficult for
many young people or first time buyers to find this kind of
money. |
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Another big upfront tax that the government has hiked up
recently is the cost of a 'carte-grise' when buying a car, (no
doubt also partly responsible for the troubles in the French car
industry which then required a bailout from the taxpayer.) The
total cost depends on the horsepower of the vehicle and the
amount of CO2 it emits. This is an eco-tax designed to encourage
people to drive less-polluting cars, but it seems even quite
efficient vehicles are now expensive to buy. I looked at two examples;
a 2 litre diesel estate car costs €450 to
register, not cheap but not prohibitive, whereas a 3 litre
diesel will cost a shocking €2300 to register! It would seem
that larger cars with larger engines will in future only be
enjoyed by the wealthy who can afford to pay these taxes and
they take no account of how many kilometres a person actually
drives each year. |
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However, the real threat to the French standard of living may be
yet to come. Rising taxes will eat away at disposable income and
higher interest rates (they are only going up from here!) will
at some point also drain spending power from the economy.
Additionally, the effect of a weak currency can also push up
prices. If the Euro continues to weaken significantly as it has
threatened to do in recent weeks then you will see the cost of
life’s essentials, so many of which are imported into the
Eurozone, getting more expensive. These rising expenses are
unlikely to be countered by large salary increases or more
easily-available consumer credit, so we might well find that our
spending power continues to diminish for the foreseeable future. |
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Richard McCreery 19th March 2010 email:
richard@rivieralife.tv |
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Read Richard's
previous blog |
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12
Mar 10 Euro battered, but
not as much as the Pound |
