Europe News

Hollande Faces Questions on Tax Pledge

Hugh Carnegy

President François Hollande’s socialist government was facing mounting questions on Thursday night over whether it was preparing to back down on its controversial 75 percent marginal tax rate for the rich.

French President Francois Hollande
Getty Images

Responding to reports that the rate would be reduced to 67 percent, that all non-salary income would be exempt and couples would only be exposed on joint income above €2m, officials said no decisions had yet been made on how the tax would be levied.

The officials admitted that “lots of scenarios” were under discussion in the Elysée palace and the finance ministry on exactly how the tax would be introduced when it is put into force at the beginning of next year. A decision is due in time for the 2013 budget in two weeks’ time.

But the government is determined to find a face-saving way of formally retaining the 75 percent headline figure. “The 75 percent rate will be applied,” said one official.

Mr. Hollande’s promise to impose the rate on incomes above 1 million euros ($1.26 million) a year was one of the most popular moves of his campaign, helping him to defeat Nicolas Sarkozy, his center-right predecessor, in the May election.

Along with other tax increases, including a rise in the rate of wealth tax, the pledge prompted David Cameron, the British prime minister, to say he would “roll out the red carpet” to French businesses and individuals fleeing the new regime.

French business leaders have stepped up the pressure in recent weeks on Mr. Hollande to limit the tax, fearing an exodus of top earners and a drought of foreign investors and managers willing to come to France.

On Wednesday, Bernard Arnault, France’s richest man and head of the luxury goods group LVMH , met Jean-Marc Ayrault, the prime minister, for talks in which he was reported to have discussed the impact of the government’s tax plans.

Responding to business concerns, Pierre Moscovici, the finance minister, said last week that the 75 percent levy would be introduced in “an intelligent manner” to avoid prompting an exodus of high earners.

The websites of the newspapers Les Echos and Le Figaro reported yesterday that the 75 percent rate would include other marginal taxes that would in effect render the new rate at 67 percent. They said it would be limited to salary, with sports and other professional stars able to avoid the tax.