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France's 75 percent tax rate: The damage report

The Local · 29 Dec 2014, 16:33

Published: 29 Dec 2014 16:33 GMT+01:00

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When Francois Hollande was bidding to oust conservative rival Nicolas Sarkozy in 2012, his most famous promise to left-wing voters was a 75-percent super-tax on the country's millionaires.

As popular as the move to tax salaries above €1 million initially might have seemed at the time, the socialist leader has since been dogged by the so-called super-tax.

His political rivals argued it would prompt big earners in the business, sporting and artistic world to leave France and deter new foreign talent from coming in, turning the country into a European version of Cuba, but "without the sun", as former banker and current Economy Minister Emmanuel Macron put it at the time.

But how damaging has Hollande’s super-tax actually been for France? And did it help rein in the public debt as the socialist leader argued it would?

“The story of the 75 percent tax rate is not positive at all,” economist Eric Heyer, from the French Economic Observatory, told The Local.

Let's look at the stats. According to France’s Finance Ministry, the annual proceeds of the super tax were €260 million in 2013 and €160 million in 2014.

As large as the sums may seem, they’re minute in comparison with a budget deficit of €84.7 billion, on its way to becoming the biggest in the eurozone by 2016.

"The effect of the tax rate on the public finances was only marginal and it had a negative impact on the image of France and its attractiveness.”

Others agreed: “The reform clearly damaged the reputation of France and its competitiveness,” Jorg Stegeman, director of headhunting firm Kennedy told the website Capital.fr.

“It has clearly become more difficult to attract senior international leaders to France,” he added.

One of the main complaints from foreign investors in France is the ever-changing tax rates and France's dabbling with the 75 percent tax rate will have only added to their list of grumbles.

"The first thing investors complain about is the fiscal and social instability and we understand it” says Chiara Corazza, the head of the Greater Paris Investment Agency told The Local. “They don’t complain about the amount of taxes they pay, just that it is always changing."

There were also fears that the tax would spur France's own high earners to flee to foreign shores, prompting UK Prime Minister David Cameron to provocatively declare that he would “roll out the red carpet” to those leaving France for sunnier financial climes.

“Some have gone abroad to Luxembourg or the UK,” said Jean-Philippe Delsol, a tax lawyer and author of the book “Why I am leaving France”.

However Delsol says that most millionaires were able to just "find a solution" with their company to avoid paying the tax.

The French Economic Observatory’s Eric Heyer agrees that it’s important not to exaggerate the negative impact of Hollande's super tax because it didn’t exactly cause the mass exodus of the rich and the famous that doomsdayers predicted.

“In reality it hardly affected anyone in France as it was fairly easy to avoid it, but many abroad got the impression that everyone in France was paying 75 percent of their wages in taxes,” Heyer said. 

Heyer stressed that the super tax was a symbolic measure but in the end it was misjudged and poorly prepared.

“It was badly thought through and was basically an attempt by Hollande to rally his support on the left of the party," he said.

“He wanted to show that it was not just the middle classes who would pay for austerity through tax rises.”

Since then however, the left of the party has turned against Hollande as he embraced more liberal economic policies. 

Story continues below…

Survey's suggest the French public never really saw any need for the tax.

A poll in early 2013 showed that although six out of 10 French voters supported the existence of a higher tax on the wealthy, only 21 percent thought it should be as high as the 75 percent proposed by the government.

And it continued to spark opposition from all walks of life. Most famously actor Gerard Depardieu quit France for either Belgium or Russia because of the high taxes, before later denying it. 

Even France’s top football clubs threatened to go on strike as league chiefs claimed the tax would make it impossible for France to attract players of the likes of PSG's Zlatan Ibrahimovic and former Monaco striker Radamel Falcao, both of whom earn millions.

The country’s Constitutional Council also showed its disapproval of the super tax by deeming it illegal and unfair to tax individuals earning more than €1 million at 75 percent, later approving an amended law that would see companies carry the financial burden.

When the tax rate is removed on January 1st Hollande himself will probably be more relieved than any of the country's millionaires as he will finally be rid of this old thorn in his side.

by Alex Dunham

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