Hollande begins his promised attack on France’s wealthy

05 July 2012

France’s new Socialist government has announced a series of increases in personal and business taxation, as expected.

The President, Francois Hollande, was elected in May on a platform of increasing taxes for the wealthy, especially a 75 per cent top rate of income tax. Some of the proposed new taxes were pitched as only temporary until France has reduced annual public sector borrowing from its current level of 5 per cent of national output. That sets a target of cutting the deficit by EUR10 billion this year and a further EUR33 billion in 2013, but it could easily take longer.

Hollande’s success was followed last month by parliamentary elections with his Socialist colleagues winning by a comfortable majority.

Now Hollande is beginning to deliver on his promises. In Wednesday’s amended Budget he announced a first tranche of tax rises, including an extra EUR2.3 billion of wealth taxes (l’impôt de solidarité sur la fortune, or ISF). This will be imposed on households with net assets worth more than EUR1.3 million.

Estate and gift taxes are also to be increased. Dividend taxes are to be increased to 3 per cent, while the tax on financial transactions (which has not yet been introduced) will be doubled to 0.2 per cent. Recipients of share options will be taxed at 10 rather than 8 per cent while the issuing companies will have to pay 30 instead of 14 per cent.

There will also be an additional EUR1.1 billion one-time levy on the financial and energy industries.

However, the dreaded 75 per cent top rate of income tax on earnings above EUR1 million will not be introduced until the 2013 Budget, this will be unveiled in the autumn.

Unexpectedly, Hollande also announced a new levy on foreign owners of holiday homes. Tax on rental income from such properties will increase from 20 to 35.5 per cent, applying retrospectively as from 1 January 2012. According to the French government, this will affect about 60,000 properties. Also, starting next month, a capital gains tax rate of 34.5 per cent will apply on disposal, compared with the current 19 per cent.

A similar idea was floated last year by the Sarkozy administration. But it was dropped when the government was advised that such a tax would not survive a challenge under European Union anti-discrimination legislation. Hollande may believe he can avoid this by calling the levy a ‘social charge’ rather than a tax.

 

Sources

Reuters

Nouvelle Republique (in French)

Guardian

Telegraph

Cityam

 

 

 


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