The news that France’s highest court has now approved a 75% tax rate on the country’s high earners has sent the media, not to mention France’s millionaires (and especially its footballers) into a frenzy. But what are the real facts on France’s millionaire tax and what will it mean for business owners in France?
Almost exactly one year ago the tax was proposed by France’s beleaguered president François Hollande as a way to crowbar the country’s top wage earners into reducing the heavy budget deficit and help buoy the sinking economy. One of France’s most bankable international stars Gerard Depardieu immediately decamped to become a Russian citizen and France’s football teams threatened the most French of traditions – that of strike action.
But the law was elbowed out after the members of the Constitutional Council deemed it unlawful, ruling that individuals could only be taxed up to a limit of 66%. A huge sigh of relief echoed through the plusher districts of Paris as its millionaires felt free to jangle their pocket change once again.
Not for long though. President Hollande shuffled off and after a fair bit of tweaking came back for another shot but this time it was with a proposal for a tax on companies paying high annual salaries that exceeded 1m euros. So instead of the onus being on the high earner, it revoked the problem back on the employer of the high earner.
Which is all very well if you’re a footballer getting paid that kind of money, but not so great if you’re the owner of the football team who is laying out for your pay packet (such as the owner of the Paris Saint-Germain team who has more than 10 players whose pay exceeds 1m euros. Ouch.)
However, most of the French public are not crying into their onion soup for a minority group who make their employees wear long socks and shorts to work. Especially as the tax is only a temporary one – lasting for only two years affecting income earned in 2013 and 2014 – and with a five percent cap of a company’s turnover.
According to latest polls, a large majority of French residents are actually in favour of the tax, most of whom have suffered hugely under the economic crisis which shows only the slowest signs of recovery in France, way behind its European neighbours. This is a much-needed vote of confidence for Hollande who desperately needs the public on his side after recently being dubbed the least popular president ever in a BVA poll with only 26% of French people approving his presidential performance so far.
France is not known for its go-getting attitude to business (as its poor track record with auto-entrepreneurs and its lackadaisical approach to customer service testifies) and for owners of successful French companies it might seem that La France is penalizing the very people who are keeping the economy going.
But Hollande publicly stated in that his aim was “not to punish” the business community, adding that he anticipated the tax will discourage the ballooning figures for executive pay, bringing salaries into line and narrowing the gap between the ‘haves’ and the ‘have-nots’.
Perhaps Hollande hopes the move will be interpreted as a throwback to the French revolution when taking from the rich and giving to the poor was seen as heroic. Whatever the outcome, France relies on its big businesses to keep the country afloat. Let’s hope the temporary tax will only dent their fortunes and not sink them for good.