French court says tax is unconstitutional
Baku,December 30 (AZERTAC). France’s constitutional council has delivered an awkward political blow to President François Hollande by ruling against his flagship 75 per cent marginal income tax rate due to take effect on January 1.
The council said the way the tax was due to be imposed was unconstitutional, although it did not directly strike down the tax rate itself, which has been the symbol of a range of heavy tax increases by the socialist government that have prompted a number of prominent business and other figures to head for tax exile, including film star Gérard Depardieu.
Jean-Marc Ayrault, the prime minister, quickly announced that the government would redraft the measure, to be imposed for two years on earned incomes above €1m a year, to conform with the constitutional council’s ruling. It was not clear how and when this would be done but the government made it clear a supertax would remain applicable for 2013 and 2014.
The council said the planned imposition of the tax on individuals, rather than the normal assessment by household, was contrary to the principle of equality. It pointed out that this could result in a household in which two individuals earned just less than €1m would be exempt, but a household in which one person earned just above the limit would be hit.
Although the ruling did nothing to deflect the government’s determination to impose such a tax on top earners, highly popular on the left since Mr Hollande announced it during his election campaign earlier this year, it will reinforce the fierce opposition from business leaders and the opposition centre right UMP party, which brought the case before the constitutional council.
The 75 per cent rate itself only hits about 1,500 people and will raise only a few hundred million euros. But along with increases in wealth taxes, capital gains taxes and other surcharges, it has prompted strong protests from entrepreneurs, big business and investors that the government is forcing wealth creators out of France at a time when the economy is flagging and unemployment is rising above 10 per cent of the workforce.
Mr Ayrault stressed that the council’s ruling would not jeopardise the government’s plan to reduce the budget deficit to 3 per cent of gross domestic product next year - and balance the budget in 2017.
The 2013 budget, passed by parliament earlier this month, included €20bn in tax increases and €10bn in spending curbs, a ratio strongly criticised by business.
The prime minister also pointed out that the constitutional council had validated in principle the government’s controversial move to bring capital gains tax rates in line with income tax brackets, increase wealth taxes and impose new corporation taxes.
But the council did change a couple of measures which it deemed excessive, including reducing a 75 per cent rate on the realisation of stock options and cutting the requirement of those subject to wealth tax to pay up on unrealised capital gains.
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