The taxman rings again

Google: If you can’t beat them, tax them. Nicolas Sarkozy, the French president, has just added his voice to the chorus of those who have long demanded that Google be penalised for its dominance of the online advertising market. He has asked the government to find ways to get Google to pay at least some taxes in France. This come on the heels of a government-commissioned report suggesting online advertising should be taxed to the tune of 1-2 per cent of revenues, to help subsidise the French music industry and other online content providers. Both approaches are wrong. Worse, the French government’s Google obsession can only backfire.

Over the years France has tried to rope in other European governments in trying to emulate the success of Google — supporting various publicly-financed schemes that were supposed to compete with the US search engine behemoth. The projects failed because they found neither a compelling technology nor a solid market.

Now Google seems to have become for French officials the cause and symbol of most ills plaguing all Internet-challenged media. As if it was responsible for the illegal downloading of music files or the free-falling circulation of newspapers! And as often when faced with major technology shift, the French knee-jerk reaction is to tax and subsidise.In that vicious game, everyone’s a player. Online news sites have gone to the government hat in hand to ask for the same type of subsidies that the print press has long enjoyed.

Newspapers in turn are asking for extra public money to help their own online operations. The music industry is begging for help (ie, taxpayers’ money) to fight illegal downloading.

With its ballooning budget deficit, the French government has to find that money somewhere. But taxing the likes of Google, Microsoft or Yahoo to help local content provider is not only protectionist, it is also self-defeating. If anything, the shift to online advertising must be encouraged, not hindered. And subsidies will only drug the French content providers into thinking that they can delay their search for seriously-paying customers.