Nicolas Sarkozy’s 50% cap on tax is under attack as the government looks to increase revenues and, as the deadline for wealth tax approaches, the clamour for reform of how France taxes the rich is getting louder
FRANCE must fundamentally rethink the way it taxes the rich, a leading senator claims.
Senate finance committee spokesman, Philippe Marini, of Nicolas Sarkozy’s UMP party, said France should simplify its system by abolishing wealth tax and removing the 50% cap on total taxation.
He has added his voice to calls from all political persuasions to change the way the rich are taxed.
Nicolas Sarkozy’s flagship policy, the bouclier fiscal (fiscal shield) which limits total taxation to 50% of income, has come under fire – increasingly from within his own party. The policy has been criticised for giving tax refunds to the rich in a time of financial crisis and mounting national debt. Last year the bouclier fiscal handed back €586million in taxes.
Meanwhile France’s wealth tax – the impôt de solidarité sur la fortune (ISF) – which is levied on possessions which pass a threshold of €790,000 – continues to be criticised for pushing wealthy people to leave the country.
“My opinion has not changed since the financial crisis,” said Mr Marini. “Firstly, France cannot be the only country in the EU to tax possessions and secondly in coming out of the crisis the need for us to be competitive is stronger than ever – we must get back a potential for growth. We must remove the ISF and the bouclier fiscal and increase income tax to compensate for losses [the bouclier pays back less than comes in from wealth tax], with a new top bracket, and higher tax on capital gains.
“We must be attractive and competitive. The ISF sends out a negative message to investors and wealthy people who we need in this period where we are coming out of the financial crisis.
“I am convinced that the ISF has the effect of making people leave and stopping people coming - it is indisputable.
“You only have to travel, and meet people who might have invested in France or come to live here, to realise it is a dissuasion.”
Mr Marini said it was futile to argue the tax should be kept for “symbolic” reasons.
“The other countries of Europe do not have poorer people than France.
Solidarity is needed everywhere and the right way to show it is with redistribution through income tax.
“We could also modify the social security benefits given to the rich - so, for example, a billionaire does not get the same reimbursements for healthcare as the average person does.”
Critics of the ISF often point out that it brings in only a comparatively small amount (1.4% of French tax income in 2007 - €4.03 billion).
The tax is paid each June and this year pundits predict it could bring in its lowest amount since the early 2000s, due to the impact of the economic crisis.
A spokesman for the tax worker’s union, SNUI, said that it could make 20% less than last year, due to drops in the value of property and shares.
“Last year we were just at the start of the crisis - the real impact will be seen this year,” he said. Nonetheless the union is among supporters of the tax. Its leader, Serge Colin said: “We defend the wealth tax because apart from this, French tax policies have been giving presents to the rich for years - like the bouclier fiscal.
“A lot of people say things have gone too far now. When the state gives back hundreds of thousands of euros to certain people there is a feeling of injustice, especially when a lot of people are having difficulties, with redundancies and unemployment.
“We may need to modify the way the wealth tax is calculated to make it fairer – for example you should not pay if your only sign of wealth is your main home – but the richest need to be making an effort. It is a question of fiscal justice.”
Mr Colin added: “It’s more important than ever to have a tax on capital, on the richest people, when many of them have not felt the effects of the crisis. It must not be those in hardship who are hit hardest – not only, perhaps, losing their jobs, but also having to face higher than ever local taxes. There must be a sense of solidarity and the rich should contribute more.”
He said the whole tax system needed to be reviewed, with a reduction in VAT and an in-crease in ISF and income tax.
The union’s spokesman Vincent Drezet said the ISF was important also because of France’s low income tax.
“Redistribution of wealth is not done via income tax alone, so we also need this tax on your capital. Another problem is that there are too many niches fiscales [tax-free investment schemes], which leads to injustice.
“The ISF should be reorganised to be a real tax on what you own as part of a wider tax reform. Before the financial crises, the debate was mainly polarised between people who wanted to scrap the tax and put nothing in its place or those that wanted to keep things as they are – now the climate is more favourable to our point of view.”
Mr Drezet said, while the ISF generated less than some other taxes, it still produced useful income for the state.
“All the facts are not available – even if it is true some people go to live in Belgium, on the other hand a lot of foreigners move to France; and even considering the cost of administering it, the income is very positive.”
