France drops President Hollande vote-catching but disastrous Supertax

Once a flagship policy of French President Francois Hollande, the 75-percent “supertax” on top earners limps into its final weeks this month having sparked plenty of controversy but few economic results.

It was no surprise that the policy, which expires on February 1, would be quietly dropped: it was only ever slated to last two years and the Socialist government has for months declared it would not be renewed.

The tax had also been watered down until it was barely a shadow of the “exceptional contribution to solidarity” proclaimed by Hollande when he came to power in 2012.

France’s top court had declared as unconstitutional the original plan to levy the tax on all individuals earning one million euros ($1.2 million).

The government came back with a version that made companies pay the 75-percent rate only for the portion of employees’ salaries above the million-euro ceiling.

But by then, it had already become a symbol of France’s opposition to big business and attracted high-profile derision.

Actor Gerard Depardieu stormed out of the country in a huff over the tax and took up Russian citizenship in 2013. It was reported he only paid six-percent tax in his new home.

“I am leaving because you consider that success, creation, talent — anything different — must be punished,” he wrote at the time.

French football clubs were also horrified, saying the tax made it difficult to attract top-flight talent.

Clubs in Ligue 1 and 2 threatened to strike in late 2013 although they found it hard to rally much sympathy for the multi-millionaires at clubs like Paris Saint-Germain, where more than 10 players qualified for the tax.


– Shifting right –


The fate of the supertax mirrored the wider trajectory of the troubled Socialist presidency, which was elected in a surge of left-wing enthusiasm but has been forced to temper its initial approach in a desperate bid to escape the country’s economic quagmire.

Even by its own standards, the tax was largely a failure — the watered-down version brought in minimal revenue and did little to tackle wealth inequalities.

It also had a limited impact on the government’s efforts to balance its books and pay off ballooning debts.

Still more damaging was the way it added to the perception of France as “anti-business”, an image that was gleefully exploited across the Channel in Britain where Prime Minister David Cameron said he would “roll out the red carpet” for French executives fleeing the supertax.

Facing record unemployment, a sluggish economy and unable to meet European borrowing limits, Hollande has since taken his country in a very different direction.

Last year he appointed economic liberals such as Prime Minister Manuel Valls and Economic Minister Emmanuel Macron to give the impression of a France “open for business”.

For his Socialist party, such efforts lie somewhere between blasphemy and high treason. Hollande was forced to dissolve the government in August and fire two leftist ministers who opposed the new direction.

But he appears willing to risk a civil war in his ranks to reverse the long cycle of economic disappointment that has helped his popularity ratings plumb unprecedented lows.

Businesses blame red tape and high taxes for throttling economic activity, leading to a rare protest by business owners last month.

“Businesses are in danger of dying,” said Gerard Ramond, representing small and medium-sized enterprises at one demonstration. “This year, 70,000 businesses went bankrupt. That’s 110,000 jobs gone.”

Hollande appears to be listening, and is pinning his hopes on a package of reforms to boost business activity — cutting public spending and red tape, opening up “protected” professions and relaxing rules on Sunday trading.

“Everything must be made easier,” he said in his New Year’s address. “It is necessary if we want to become more attractive, more modern, more flexible.”

But while the measures might strike foreign observers as small-fry, they will still face furious opposition from some members of his own party.

And it is far from clear whether these efforts will make much difference to the economy, forecast to eke out growth of just 0.3 percent in the first half of 2015.

The Supertax timeline:


– February 27: Socialist presidential candidate Hollande pledges during his election campaign to tax annual income of more than one million euros ($1.2 million) per year at 75 percent.

– March 1: French footballers blast the plan, saying it would kill the sport by scaring off top players.

– July 3: Hollande’s Prime Minister Jean-Marc Ayrault confirms the tax, which is derided abroad, especially in Britain.

– December 9: Prominent French actor Gerard Depardieu takes up residence in a tiny village just over the border in Belgium, which is a favoured spot for wealthy French tax exiles. Politicians react with dismay. He goes on in 2013 to receive a Russian passport, paying a reported rate of only six percent in his newly-adopted country.

– December 29: France’s top constitutional body strikes down the tax, saying it is unconstitutional because, unlike other forms of income tax, it applies to individuals instead of whole households. The government vows to push ahead and propose a revision that would conform with the constitution.


– March 28: Hollande moots a new proposal to make companies pay the tax.

– October 18: Parliamentarians adopt the new tax at first reading. Capped at five percent of a company’s turnover, it will be due in 2013 and 2014 on salaries of more than one million euros a year. The government says it will concern around 470 companies and 1,000 bosses or workers and will bring 210 million euros a year into the coffers.

– October 24: French football clubs announce they would go on strike for the first time in more than 40 years from November 29 to December 2 in protest at the new tax. On November 14 the clubs state that they have postponed the strike, after the start of talks mediated by Socialist MP Jean Glavany.

– December 29: France’s top court approves the new version of the tax.


– October 6: During a visit to London, Prime Minister Manuel Valls confirms that the tax will not be extended and will therefore be scrapped in early 2015.


– The tax lives through its last few weeks. For businesses which have to pay it, the tax on 2014 income is eligible on February 1, 2015.

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