Hollande acts over wealth tax crisis

Francois Hollande's public storm
Francois Hollande's public storm

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Story highlights

  • Francois Hollande said there would be "no exceptions" in tax hike for the rich
  • Incomes over €1m will face 75% marginal tax rate for the next two years
  • Bernard Arnault, France's richest man, confirmed he had applied for Belgian citizenship
  • Arnault's action set off heated debate about the efficacy of high taxes on the very rich

Francois Hollande said on Sunday there would be "no exceptions" in the imposition of his incoming 75% marginal tax rate on incomes over €1m ($1.23M) but that the measure would be dropped after two years because the economy was likely to have recovered by then.

The French president spoke during a 25-minute, prime-time television interview aimed at countering falling opinion poll ratings and dispelling accusations of inertia after a weekend dispute over his flagship election measure.

He spoke a day after Bernard Arnault, France's richest man, confirmed he had applied for Belgian citizenship. Arnault, head of Paris-based LVMH, the world's biggest luxury goods group by sales, told AFP news agency on Sunday: "I am and will remain fiscally domiciled in France ... our country should be able to count on the contribution of each person to face up to a profound economic crisis in an exceptionally tight budgetary context."

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Arnault's application for joint Franco -Belgian citizenship -- which the entrepreneur attributed to his personal Belgian business interests -- set off a heated debate about the efficacy of high taxes on the very rich, which even the government has described as principally symbolic.

Benoît Hamon, a junior Socialist minister, accused Arnault of being unpatriotic, while the UMP opposition said the Hollande government was paying the price of ill-thought-out policies. Frédéric Lefebvre, former UMP minister for small industries, criticized the government for "coming up with demagogic solutions and then crying over their inevitable consequences."

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The promise to tax earnings above €1m at 75% was one of Hollande's most popular pledges ahead of his May victory over Nicolas Sarkozy, the centre-right former president, who accused the then-Socialist leader of being "useless" and inexperienced.

However, the threat of a mass exodus of high-earning footballers, singers and captains of industry helped provoke recent reports that the government was seeking to water down the measure -- which Hollande countered last night.

He said a rise in personal taxes would contribute one-third of the €33bn financing gap next year. Another third would fall on businesses while spending cuts would account for the rest. The two-thirds contribution of €20bn from taxes and just one-third from cuts represents a higher tax burden than the 50-50 split the government had previously indicated.

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Moreover, €33B ($42B) may end up not being enough, since the funding gap is likely to widen following Hollande's disclosure in the interview that the government would cut its 2013 growth forecast to 0.8% from 1.2% previously.

Hollande's election promises to foster growth and create jobs have been dealt a blow by gloomy economic indicators since the May election.

Media taunts of indecisiveness and inaction have given the president a rude start to the rentrée, when France hunkers down to work after the summer holidays. "Wake up, Hollande, there's a fire," ran a headline in Marianne, a weekly. "Are they useless?" asked Le Nouvel Observateur, while L'Express demanded: "What if Sarkozy was right?" But the left-leaning Le Monde newspaper accused the weeklies of "Hollande-bashing" headlines to boost sales.

A BVA poll published for Le Parisien on Sunday showed almost 60 per cent of French people are "relatively unhappy" with the president's start, compared with 34 per cent on May 31.