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Hollande unveils tough new 75% tax for France's top earners as part of 'soak the rich' budget
France today unveiled a 'soak the rich' budget that hammered big business and the wealthy in a high-risk strategy 'to get the country back on the rails'.
Francois Hollande – France’s first Socialist president since Francois Mitterrand in the 1980s – outlined a £24 billion austerity package in the harshest budget for 30 years.
But to the dismay of business leaders who fear an exodus of top talent, the centrepiece was a 75 per cent super-tax on incomes over £800,000 a year.
There was also a new 45 per cent band for earning over £120,000 and business lost a series of tax breaks.
Critics said it risked driving entrepreneurs and the wealthy overseas – including to London – and voiced alarm over the decision to impose £16 billion of tax rises and just £8 billion of spending cuts.
But French Prime Minister Jean-Marc Ayrault insisted it was 'a fighting budget to get the country back on the rails'.
He said: 'It is a budget which aims to bring back confidence and to break this spiral of debt that gets bigger and bigger.
'It's true we’re asking for an effort of the richest, the top 10 per cent and the top one per cent in particular.
'Big companies pay less than the small companies and sometimes don't pay at all. So we’re asking them for an effort too.'
Confirmation of the 75 per cent super-tax – the highest rate anywhere in the world, which by the government’s own figures will only raise £160million next year – is likely to cause a stir in Downing Street.
In June, David Cameron promised to 'roll out the red carpet and welcome more French businesses to Britain' if the tax hike went ahead.
The comments sparked a furious reaction in France but business leaders warned that Mr Hollande is doing untold damage to the economy.
Guillaume Cairou, head of the Entrepreneurs Club in France, said austerity should have been more balanced towards spending cuts.
'France is sick because of the model it has but is choosing to preserve it,' he said.
'The government is impeding investment and so will block innovation.'
Dr Jon Mulholland, a senior lecturer in sociology at Middlesex University and an expert on the migration of highly-skilled workers from France to London, said Britain stood to benefit from the super-tax.
'The tax announcement for the top 10 per cent of earners in France will lead to an exodus of some of the most talented French workers to London,’ he said.
'Many highly skilled French workers are attracted by the UK’s economic and political model, and London is the prime destination for them and this rise will exacerbate this.'
Sophie Dworetzsky, a partner at law firm Withers, said the French are already seeking advice on coming to the UK.
'We may need to spruce up Britain's red carpet for the French sooner rather than later, given President Hollande's latest announcement,' she said.
'Since Monsieur Hollande's election we have seen a definite, and strong, increase in French individuals and corporates investigating the best, and most tax-efficient way to relocate to the UK and minimise their French tax burden.
'Typically, we are asked how to avoid becoming UK-resident for tax purposes, but it in this case UK residence is highly favourable, whereas French tax ties are seen as a burden.'
Mr Hollande swept to power in on an anti-austerity and pro-growth ticket but his approval rating has plummeted since he took office in the summer.
The French economy is on the verge of recession having stagnated for the last nine months and unemployment has soared to its highest level this century.
With the French national debt at a post-war record of 91 per cent of national income, any hopes that Mr Hollande would water down austerity were quickly dashed.
As well as hiking taxes on the wealthy and targeting big business, the government froze government spending as it battled to get the country's finances back under control.
Finance minister Pierre Moscovici said the 'unprecedented' budget was needed to cut the deficit from nearly £70 billion or 4.5 per cent of national income this year to 3 per cent next year.
'The 3 per cent target is vital for the credibility of the country,' he said.
'We are committed to it and we will meet it.'
But economists are sceptical about the government’s ability to meet the target – particularly as it is based on the assumption that the French economy will grow by 0.8 per cent in 2013 and 2 per cent in 2014 despite the debt storm tearing through the eurozone.
'The 3 per cent target is not possible,' said Ludovic Subran, chief economist at credit insurer Euler Hermes. 'I don’t believe they’ll make it.'
Philippe Waechter, an economist at fund manager Natixis Asset Management, said: 'I have a hard time seeing how we’re going to find the necessary growth in 2013 and afterwards.'
Mr Hollande's soak the rich policies have already sparked a backlash in France.
Jean-Paul Agon, chief executive of L'Oréal, the world’s biggest cosmetics company, this week said it would be 'very, very difficult to attract talent to work in France' if taxes are hiked.
Earlier this month, Bernard Arnault, head of the luxury goods group Louis Vuitton Moet Hennessy, admitted he had applied for Belgian citizenship.
Eric Chaney, chief economist at investment manager AXA, said: 'The government has understood that the increase in the public debt has got to be halted but the way that they are doing it is not the right way.
'It amounts to strongly increasing the tax burden on companies, their shareholders and executives, in other words those who create added value.
'It will lead to an even bigger loss of competitiveness and so a reduction in long-term growth. That will in turn keep the deficit and debt from being reduced over the long term.'
France today unveiled a 'soak the rich' budget that hammered big business and the wealthy in a high-risk strategy 'to get the country back on the rails'.
Francois Hollande – France’s first Socialist president since Francois Mitterrand in the 1980s – outlined a £24 billion austerity package in the harshest budget for 30 years.
But to the dismay of business leaders who fear an exodus of top talent, the centrepiece was a 75 per cent super-tax on incomes over £800,000 a year.
There was also a new 45 per cent band for earning over £120,000 and business lost a series of tax breaks.
Critics said it risked driving entrepreneurs and the wealthy overseas – including to London – and voiced alarm over the decision to impose £16 billion of tax rises and just £8 billion of spending cuts.
But French Prime Minister Jean-Marc Ayrault insisted it was 'a fighting budget to get the country back on the rails'.
He said: 'It is a budget which aims to bring back confidence and to break this spiral of debt that gets bigger and bigger.
'It's true we’re asking for an effort of the richest, the top 10 per cent and the top one per cent in particular.
'Big companies pay less than the small companies and sometimes don't pay at all. So we’re asking them for an effort too.'
Confirmation of the 75 per cent super-tax – the highest rate anywhere in the world, which by the government’s own figures will only raise £160million next year – is likely to cause a stir in Downing Street.
In June, David Cameron promised to 'roll out the red carpet and welcome more French businesses to Britain' if the tax hike went ahead.
The comments sparked a furious reaction in France but business leaders warned that Mr Hollande is doing untold damage to the economy.
Guillaume Cairou, head of the Entrepreneurs Club in France, said austerity should have been more balanced towards spending cuts.
'France is sick because of the model it has but is choosing to preserve it,' he said.
'The government is impeding investment and so will block innovation.'
Dr Jon Mulholland, a senior lecturer in sociology at Middlesex University and an expert on the migration of highly-skilled workers from France to London, said Britain stood to benefit from the super-tax.
'The tax announcement for the top 10 per cent of earners in France will lead to an exodus of some of the most talented French workers to London,’ he said.
'Many highly skilled French workers are attracted by the UK’s economic and political model, and London is the prime destination for them and this rise will exacerbate this.'
Sophie Dworetzsky, a partner at law firm Withers, said the French are already seeking advice on coming to the UK.
'We may need to spruce up Britain's red carpet for the French sooner rather than later, given President Hollande's latest announcement,' she said.
'Since Monsieur Hollande's election we have seen a definite, and strong, increase in French individuals and corporates investigating the best, and most tax-efficient way to relocate to the UK and minimise their French tax burden.
'Typically, we are asked how to avoid becoming UK-resident for tax purposes, but it in this case UK residence is highly favourable, whereas French tax ties are seen as a burden.'
Mr Hollande swept to power in on an anti-austerity and pro-growth ticket but his approval rating has plummeted since he took office in the summer.
The French economy is on the verge of recession having stagnated for the last nine months and unemployment has soared to its highest level this century.
With the French national debt at a post-war record of 91 per cent of national income, any hopes that Mr Hollande would water down austerity were quickly dashed.
As well as hiking taxes on the wealthy and targeting big business, the government froze government spending as it battled to get the country's finances back under control.
Finance minister Pierre Moscovici said the 'unprecedented' budget was needed to cut the deficit from nearly £70 billion or 4.5 per cent of national income this year to 3 per cent next year.
'The 3 per cent target is vital for the credibility of the country,' he said.
'We are committed to it and we will meet it.'
But economists are sceptical about the government’s ability to meet the target – particularly as it is based on the assumption that the French economy will grow by 0.8 per cent in 2013 and 2 per cent in 2014 despite the debt storm tearing through the eurozone.
'The 3 per cent target is not possible,' said Ludovic Subran, chief economist at credit insurer Euler Hermes. 'I don’t believe they’ll make it.'
Philippe Waechter, an economist at fund manager Natixis Asset Management, said: 'I have a hard time seeing how we’re going to find the necessary growth in 2013 and afterwards.'
Mr Hollande's soak the rich policies have already sparked a backlash in France.
Jean-Paul Agon, chief executive of L'Oréal, the world’s biggest cosmetics company, this week said it would be 'very, very difficult to attract talent to work in France' if taxes are hiked.
Earlier this month, Bernard Arnault, head of the luxury goods group Louis Vuitton Moet Hennessy, admitted he had applied for Belgian citizenship.
Eric Chaney, chief economist at investment manager AXA, said: 'The government has understood that the increase in the public debt has got to be halted but the way that they are doing it is not the right way.
'It amounts to strongly increasing the tax burden on companies, their shareholders and executives, in other words those who create added value.
'It will lead to an even bigger loss of competitiveness and so a reduction in long-term growth. That will in turn keep the deficit and debt from being reduced over the long term.'
