The three most damaging words in the French language for Emmanuel Macron are président des riches. The label created for the French head of state by the far-left party France Unbowed has caught on. In a poll published earlier this month by Libération newspaper, 53 per cent of respondents said Macron's economic policies benefit the rich most.
The idea is based on Macron’s reform of the ISF wealth tax, which became official in the 2018 budget this week. Henceforth, interest, dividends and capital gains will be taxed at a flat rate of 30 per cent, and will no longer be subject to the ISF, which confiscates a portion of wealth beyond €1.3 million.
The richest French, those who are worth more than €10 million, hold 90 per cent of their fortune in financial portfolios now exempt from the ISF.
Real estate will continue to be subject to the wealth tax. "The philosophy is: property wealth cannot leave the country, so we'll continue to tax it," said the left-leaning economist Daniel Cohen. "Capital can leave the country, so we'll stop taxing it."
Prime minister Édouard Philippe attempted to defend Macron’s €4 billion gift to the wealthiest French in a television appearance on Thursday night. He was accused by the France Unbowed leader Jean-Luc Mélenchon of “giving €4 billion to people who already have everything”. Mélenchon wants a “universal tax” that all French would be forced to pay “anywhere in the world.”
Philippe said 10,000 taxpayers have left France because of the ISF, taking €35 billion in capital with them. “When a taxpayer leaves, he pays no more tax at all, not the ISF, not income tax,” Philippe said. “Collectively, all the French lose.”
Signs of compromise
In a sign that the Macron administration seeks compromise, Joel Giraud, the budget rapporteur in the National Assembly, on Friday gave an interview to Le Parisien newspaper. "Yachts, private jets, race horses, luxury cars and gold ingots are no longer included in the new wealth tax. That can't be!" Giraud said. "These kinds of symbols must be taxed much more. A yacht is flashy and it isn't productive for the economy."
Media reports say new taxes on such “exterior signs of wealth” could be used to finance appropriate programmes. For example, a tax on private jets would fight air pollution. The tax on yachts could be used to protect the coastline. “In terms of the budget, it’s peanuts,” said a commentator on France-Inter radio. “But it’s politically symbolic.”
The government argues that the 2018 budget will increase purchasing power for ordinary people. Welfare payments for the elderly are being increased, even as pensioners demonstrate against the rise in the general social contribution, or CSG, which will hit them particularly hard. Childcare payments for needy families and allowances for the handicapped are also being increased. The residence tax is gradually being done away with for 80 per cent of French households.
Yet the perception that Macron cares mostly about business management and the rich remains entrenched. In the country that invented the guillotine to punish privilege, Macron has an uphill battle convincing the electorate that the accumulation of private wealth can benefit society.
Off with his head
As prime minister in 1986, Jacques Chirac temporarily abolished the wealth tax. He paid for it with nearly a decade in the political wilderness.
Some of Macron's former allies are jumping on the bandwagon. The cover of the centre-left magazine L'Obs, which has supported Macron in the past, shows the young president grinning, dressed in a banker's pinstriped suit, with the title "Why he gives to the rich".
The former socialist finance minister Michel Sapin and François Bayrou, Macron's centrist ally, who had to resign as justice minister over a financial scandal, criticised him this week for alleged weakness on social policy.
The government hopes that tax relief on capital investment will stimulate the French economy, and possibly attract money from the City of London. French commentators compare the argument to Ronald Reagan’s trickle-down theory of the early 1980s, which led to the richest 1 per cent of Americans monopolising more than half the country’s wealth. In France, the richest 10 per cent hold half the wealth.