The French Super-Tax

, by Osmi Anannya

The French Super-Tax

The Socialist President of France, François Hollande, prioritised one proposal during his election campaign - one that was aimed at warding off any gains for his Communist-supported rival and which has now become to be known as the “super-tax”. The proposal made it mandatory for any citizen of France with earnings greater than €1m to pay an increased tax rate of 75 per cent.

Promising to erase the popular tax breaks for the wealthy his predecessor, Nicolas Sarkozy had put in place, the proposal was met with opposition by many. It was a major talking-point of the campaign, with even tax advisers across the border in Switzerland suggesting that taxing the wealthy could lead to mass migration for the affluent population in France.

Labelling it as patriotic for the the wealthy French to be pitching in more to support the country in tough economic times, legislating for the proposal would mean elimination of M. Sarkozy’s tax cap at 50 per cent for all incomes. Winning over 300 seats in the lower house of parliament, the Socialist Party came to power on the back of its policies, many of which are directed at tackling austerity. Owing to the landslide victory, the party can pass legislation which could for once stand to solve the public debt issues with the aid of a hike in tax revenues.

The French budget for 2013, which includes the “super-tax”, has been passed by parliament. In December last year, France’s Constitutional Council however, ruled the “super-tax” proposal to be harbouring inequality because unlike most tax proposals which targets households, this particular proposal targets an individual, depending on their earnings.

The scenario, according to the Council, could therefore be such that two separate households with the same total earnings could receive two different tax bills. Furthermore, the Council reduced the tax rate of 77per cent to 64.5 per cent for stock options and free shares on grounds of inequality as well. The nation’s entrepreneurs and entertainers, considered to form a large portion of the affluent class in France, had voiced concern over the tax rate shelved especially for the wealthy. The “super-tax” was initially to be active for two years but M. Sarkozy’s UMP party requested that the Council, a politically independent body composed of nine judges and three former presidents, scrutinise the proposal.

The proposal in fact was actually going to affect about 1,500 people and bring in less than €500m of tax revenues. In effect the “super-tax” was not going to raise a lot of cash, doing very little to reduce France’s somewhere around €85bn deficit. M. Hollande insists the proposal is more of a symbolic measure rather than something more practical.

In the Government’s rush to rake in more revenue from taxes, the legislation has in addition ended up with a considerably faulty constitution. Because income tax is collected from a particular household rather than an individual, if a couple together have earnings which amount to more than €1m, they wouldn’t have to face the “super-tax”.

Since the ruling, French ministers have stated that they will continue with a plan to tax the rich at a higher rate than the usual and asserted the budget deficit will be reduced to 3.0 per cent by 2014. The IMF has already predicted that France is to miss its deficit target this year and grow lesser than M. Hollande’s preferred 0.8 per cent.

The 2013 budget in total redeems €30 billion, aiming to reduce the deficit, but with high unemployment and a post-war record of public debt of 91 per cent of the economy, it is becoming increasingly difficult to do so. The budget is also important for the credibility of France because despite such a fiscal deficit, markets are still permitting it to borrow at relatively low yields.

The Council’s ruling has outraged many left-wing citizens because this may potentially lead to preventing the richer class from paying more taxes, while taxes on basic amenities and beer continue to increase. The future isn’t so bleak for France’s economy though because higher taxes imposed by the government on companies, capital gains, wealth and income, could possibly bring in more tax revenues to accommodate the monetary deficit in the country.

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