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France imposes 75pc tax on highest earnings

October 21, 2012

PARIS, Oct 20: The French national assembly has voted to tax the highest earnings in the country at a rate of 75 per cent, a campaign promise made by President Francois Hollande that has been criticised by conservative lawmakers.The measure would affect earnings of more than one million euros ($1.3 million) per year and is supposed to last for only two years. It would be paid by an estimated 1,500 people and provide the government with an extra 210 million euros in revenue per year.

Budget Minister Jerome Cahuzac on Friday termed the proposal “legitimate” and insisted it was not a question of simply confiscating hard-earned money.

“Each of us must contribute according to their means” to a collective effort to correct France’s financial situation, which includes a heavy debt load, Cahuzac said.

He stressed that the two-year period was the time it should take to straighten out the French public deficit.

The French budget rapporteur, Socialist Christian Eckert, explained that the tax was meant to be “dissuasive” and added that what was targetted were exceptional pay packages that have fueled howls of protest in the country.

“What we want is that these practices disappear,” Eckert said.

But conservative lawmaker Eric Woerth from the UMP party said: “75 per cent is a punitive tax.”

He underscored that “we are going to heavily tax a small category of people, which will bring in very little and undoubtedly cause some (taxpayers) to leave” the country.

Centrist lawmaker Charles de Courson said his UDI party would ask the French constitutional council to examine the bill to determine if it violated laws on equal treatment.

Payroll tax cuts

A government-commissioned report will urge France to cut 30 billion euros in payroll taxes over two to three years to increase the country’s competitiveness, newspaper Le Figaro said on its website on Friday citing unnamed sources.

The lost revenue would have to be covered by massive cuts in public spending — far beyond the 10 billion euro savings envisaged in the 2013 budget — as well as rises in VAT and the CSG levy that helps to fund France’s social security system, the newspaper said.

The report by Louis Gallois, former chief of aerospace group EADS, will say the sharp reduction in labour costs would give a necessary jolt to France’s economy, according to Le Figaro. French business leaders have long called for a decrease in payroll taxes, which rank amongst the highest in the world.

Gallois’ report on French competitiveness, which was commissioned by Hollande, is due out on November 5. Sources told the newspaper the report would call for labour costs to be lowered over the next two to three years — with 20 billion euros coming off charges paid by employers and 10 billion off those paid in by employees.

The cuts would only apply to wages up to 3.5 times the minimum wage, currently set at 9.4 euros an hour before tax, or 1,425.67 euros a month, the website said.

Hollande’s government is due to set out measures early next year to boost the competitiveness of an ailing economy where unemployment has risen to its highest in 13 years and growth has remained stuck at zero for the past three quarters.

The 2013 budget, aimed at cutting the deficit to 3 per cent of GDP from 4.5 per cent in 2012, has drawn criticism for focusing too much on tax hikes for high earners and businesses, and not enough on spending cuts, a strategy economists fear will hurt growth.

Le Figaro said Gallois would propose a modest rise in VAT to help compensate for the loss of revenues from payroll taxes, combined with a small rise in the CSG social charge and a new green tax on diesel fuel. French newspaper Le Monde earlier this month said the French government planned to slash payroll taxes paid by companies by 8 to 10 billion euros a year to try to restore competitiveness.

The government has not commented on either article. —Reuters