Will Sarkozy Tax the Internet?

  • Share
  • Read Later
Philippe Wojazer / Reuters

President Sarkozy has plans to tax the internet.

Never slow to burnish his reputation as an iconoclast, French President Nicolas Sarkozy has proposed funding France's state-owned television stations by taxing an activity economists and communications experts have come to consider almost sancrosanct: the use of the internet.

The announcement came Tuesday during Sarkozy's first full-blown solo press conference at the Elysée palace. As part of his plan for rationalizing the state's sprawling audiovisual empire, the President suggested "we consider the total suppression of advertising on public channels", and that income lost from the ad ban be compensated in part by "an infinitesimal sales tax on new communication methods, like internet access and mobile telephony." Freeing state television stations from ratings-sensitive advertising, Sarkozy said, would allow public TV to quit trying to match the popular but mind-numbing game shows and reality television that now dominate the schedules of private broadcasters for what Sarkozy called "purely mercantile" reasons. Instead, public broadcasters could focus on quality documentary, educational, and fiction programming. "This is a revolution that, by changing the economic model of public television, would change the entire nature of cultural policy in our communication society," Sarkozy said.

The snag in the idea is that taxing web use is widely stigmatized as a sure way to stunt economic growth. "Generally speaking, taxing the Internet is considered a bad idea, and a potential brake to net use and development," says Audrey Mandela, founder of the independent London consulting agency Mandela Associates. "But without knowing the details of the French proposal, it's difficult to say how problematic an Internet tax there would be."

French experts predict the plan is likely to hit French Internet access providers with a small, universal per-client tax each month. A flat monthly surtax of just one euro on each of the nation's 16.1 million Internet accounts would raise around $290 million per year — or nearly 25% of the $1.2 billion in annual revenues public TV will lose to an advertising ban. It is conceivable, at least, that the monthly tax could go even higher without incurring too much consumer fury, since France currently enjoys one of the cheapest ISP markets in the developed world. Average monthly Internet access in France costs around $37, which is 37% below the norm for OECD members. That comfort margin may be one reason Sarkozy dared to challenge received thinking on taxing the web.

"The people most likely to balk at tax-increased Internet prices are new users who figure if it's getting more expensive, they can keep doing without it," Mandela says. But with annual French internet access increasing by nearly 14% per year — and by more than 22% for fast connections — Sarkozy may be banking on something his fellow cash-strapped leaders may also get hip to: internet access just isn't optional for most people any more. "These days, there just aren't many people who could respond to higher Internet prices by saying, 'Forget it, I'll just do without the net from now on,'" Mandela says. "Ten, even five years ago, that wasn't necessarily so. Today, who has the choice?"

If a taboo-defying Internet tax doesn't generate protest, Sarkozy's ad ban on public TV probably will. State TV officials have already voiced their displeasure with the proposal that could translate in job cuts and more political meddling with their programming. Pundits, meanwhile, have been quick to point out that the plan would send billions in new ad revenue to private broadcasters — principally market leader TF1, which is owned by a group run by Martin Bouygues, a close friend of Sarkozy. Sarkozy has also suggested a new tax of TV ad revenues, meant to generate additional funding for public channels stripped of that income stream. But how that all adds up will only be clear when further details of the ambitious plan emerge. In the meantime, Sarkozy's potentially revolutionary plan has put his backers and doubters where he seems to like them most: on their toes.