An embarrassing derailment of President Francois Hollande’s 75 per cent millionaires’ tax may open an opportunity to water down a scheme that had damaged France’s image with international investors, but he is unlikely to give up without a fight.
The tax is unfair as it will hit married couples
Finance Minister Pierre Moscovici has promised a redrafted tax on the wealthy will be pursued next year, following the Constitutional Council’s decision on Saturday to strike down the emblematic rate on income over €1 million.
However, Moscovici has so far avoided referring specifically to the 75 per cent rate that has made some of France’s wealthy, including film star Gerard Depardieu, announce they will move abroad.
In the banking community at least, expectations are growing that the tax may look very different when the Socialist government comes back with the revised plan, even though the original enjoyed strong support among the French public.
“I suspect this tax will be shelved. In the worst case he will come back with a lower rate and in the best case it will be binned,” said Philippe Gudin, a France economist for Barclays and a former Treasury official.
“For the (low amount of) revenue it would raise, the outcry it has provoked and the damage it has done to France’s image, it would be more sensible if it were quietly buried.”
The Council said the tax was unfair as it would hit married couples where only one partner earned above a million euros but would not affect couples where each earned just under a million.
Opinion polls show that six in 10 French people back the tax. But while it would have affected only 2,000-3,000 people and raised just a few hundred million euros a year, criticism from the business sector and high earners has been incessant.
Hollande finds himself trying to appease investors who see him as anti-business and showing voters he remains serious about making the rich cough up more taxes.
Political analyst Olivier Duhamel said the Government could accept the Council’s ruling by making the 75 per cent tax applicable to households, rather than individuals, and possibly raising the income threshold to €2 million.
Alternatively, it could using the Council’s rejection as justification for making the politically risky decision to ditch the whole idea. “In politics, when things get difficult, you are stuck with unpleasant choices,” said Duhamel.
The ruling will have little effect on public finances but it embarrassed the Government again only a few weeks after it suffered a public relations fiasco over an attempt to rescue two shuttered steel furnaces.
Hollande will be wary of compounding his problems.
“Giving up the 75 per cent tax without a fight would be an admission of political weakness,” said Stephane Rozes, of the CAP political consultancy.
French media have reported even one of Hollande’s economic advisers muttered in private that a 75 per cent tax rate amounted to turning France into “Cuba without the sunshine”.
Deutsche Bank’s Gilles Moec also believed Hollande had little to gain by picking a fight with his own supporters by surrendering, but might go for the higher €2 million threshold, meaning far fewer people would be hit.