France imposes 75% tax on rich in austerity budget

Sat, Sep 29, 2012, 01:00

FRANCE WILL impose a 75 per cent top tax rate and freeze spending across government as it attempts its deepest round of deficit-cutting in 30 years.

President François Hollande’s 2013 budget aims to plug a €37 billion hole in the public finances and keep France on track to bring its deficit down from 4.5 per cent of GDP to 3 per cent next year.

Two-thirds of the money will be raised by tax increases on companies and households, with the remainder coming from reduced spending.

With record unemployment and an almost stagnant economy, many economists believe the government’s modest 0.8 per cent economic growth prediction will prove too optimistic. Publishing the budget yesterday, however, finance minister Pierre Moscovici insisted the growth forecast was achievable “if Europe steadies”.

Mr Hollande campaigned for election earlier this year on a pledge to balance the budget by the end of his term – a feat not achieved by a French government in almost 40 years.

His first budget confirmed a temporary 75 per cent tax rate on income over €1 million and a new 45 per cent rate for revenue over €150,000. Those two measures are predicted to bring in about €500 million.

Jean-Paul Agon, chief executive of cosmetics giant L’Oréal, warned in the run-up to the budget that the new super-tax would make it harder to attract top executives, but opinion polls show strong support for the tax.

With public debt at a postwar record of 91 per cent of GDP, the government portrayed the budget as vital to France’s credibility among euro zone partners and in the markets, which are allowing it to borrow at record low yields of about 2 per cent.

Prime minister Jean-Marc Ayrault claimed only one in 10 French taxpayers would pay more as a result of the changes and that higher taxes on companies – which account for one-third of the entire adjustment package – would not affect small and medium-sized enterprises that were crucial for job creation in the first stages of an economic recovery.

Employers groups and the opposition UMP were sharply critical of the government’s decision to privilege tax increases over spending cuts, however. “France is headed into the wall,” said UMP spokesman Bruno Le Maire.