French Court Rejects 75% Millionaires' Tax

Ruling may be only temporary blow to ruling Socialists.

France's Constitutional Council rejected a 75% upper income tax rate on Saturday that would have been introduced in 2013. It was a setback to Socialist President Francois Hollande's push to make the rich contribute more to cutting the public deficit.

The Council ruled that the planned 75% tax on annual incomes above 1 million euros, about NIS 5 million, was unfair in the way it would be applied to different households. The provision was a flagship measure of Hollande's election campaign. The Council, made up of nine judges and three former presidents, expressed concern that the tax would hit a married couple where one partner earned above a million euros but it would not affect a couple where each earned just under a million euros.

Prime Minister Jean-Marc Ayrault said the government would redraft the upper tax rate proposal to answer the Council's concerns and resubmit it in a new budget law, meaning yesterday's decision could only amount to a temporary political blow. While the tax plan was largely symbolic and would only have affected a few thousand people, it has infuriated high earners in France, prompting some such as actor Gerard Depardieu to flee abroad. The message it sent also shocked entrepreneurs and foreign investors, who accuse Hollande of being anti-business.

Finance Minister Pierre Moscovici said the rejection of the 75% and other minor measures could cut up to 500 million euros, about NIS 2.5 billion, in forecast tax revenues but would not hurt efforts to slash the public deficit to below a European Union ceiling of 3% economic output next year.

"The rejected measures represent 300 to 500 million euros. Our deficit-cutting path will not be affected," Moscovici told BFM television. He too said the government would resubmit a proposal to raise taxes on high incomes in 2013 and 2014. Set to be a temporary measure until France is out of economic crisis, the few hundred million euros a year the tax was set to raise is a not insignificant sum as the government strives to boost public finances in the face of stalled growth.

Gilles Carrez, of the opposition conservative UMP, who is the chairman of the National Assembly's finance commission, told BFM television, however, that the Council's so-called wise men also felt the 75% tax was excessive and based too much on ideology.

Yesterday's decision was in response to a motion by the UMP party, whose weight in fighting Hollande's policies has been reduced by a leadership crisis that has split it in two seven months after it lost power. The Constitutional Council is a politically independent body that rules on whether laws, elections and referendums are constitutional.