French 75% income tax struck down by constitutional council

French President Francois Hollande, 21 December 2012 Francois Hollande has favoured tax rises over spending cuts to tackle France's deficit

Related Stories

France's constitutional council has struck down a top income tax rate of 75% introduced by Socialist President Francois Hollande.

Raising taxes for those earning more than 1m euros (£817,400) has been a flagship policy for Mr Hollande.

The policy angered France's business community and prompted some wealthy citizens to say they would emigrate.

Mr Hollande's government said it would rework the tax, due to take effect in 2013, to meet the council's complaints.

In its ruling on Saturday, the Constitutional Council said the new tax rate "failed to recognise equality before public burdens" because, unlike other forms of income tax, it was to be applied to individuals rather than households.

Analysis

French millionaires would be well-advised to think twice before cracking open the champagne over the Constitutional Council's ruling.

The court emphatically did NOT say that the 75 per cent tax rate was too high.

No, the point on which the socialist government's flagship measure came unstuck was a technicality. In French jargon the new tax bracket for people earning more than a million euros had not been "conjugalised".

As framed, the tax band applied to individuals - not to households.

But in France, income tax is levied on households.

Therefore the provision breached the constitutional requirement that it be equitable for all.

The measure will almost certainly be back. All the government has to do is reframe and resubmit. But it now stands accused not just of a certain vindictiveness towards the rich, but also of a certain legal incompetence too.

For example, that meant a household in which one person earned more than 1m euros would pay the tax, but a household in which two people earned 900,000 euros each would not have to pay.

The council also rejected new methods for calculating the tax.

Pressing ahead

But Prime Minister Jean-Marc Ayrault said the government would press ahead with the new tax rate.

"The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council," he said.

The new rate was seen as largely symbolic since it would have only applied to some 1,500 people for a temporary period of two years.

But along with other tax rises, it has still been the subject of fierce debate in France.

French actor Gerard Depardieu recently announced he was moving to Belgium to avoid taxes, sparking a furious reaction from some on the left.

There was also speculation that people employed in high-income jobs like banking and finance would move elsewhere, including to London.

Mr Hollande campaigned against the austerity policies used in many European countries affected by economic crisis, favouring higher taxes rather than spending cuts to bring down the deficit.

The 75% rate for high earners was included in the government's 2013 budget, approved by parliament in September.

More on This Story

Related Stories

More Europe stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.