Wealth tax faces the axe in 2011

WEALTH TAX and the bouclier fiscal tax cap could both be scrapped in an overhaul of French taxation next summer, President Sarkozy has announced.

The bouclier fiscal, which caps the maximum amount of tax paid by a person at 50 per cent of their income, has come under increasing pressure from MPs, including those in government.

To see off a revolt by MPs examining the 2011 budget, President Sarkozy said he was willing to look at scrapping the bouclier, a key election pledge, as part of a wider review of taxation.

The bouclier had become increasingly unpopular; it handed €679 million back to predominantly rich households this year, while the government seeks to increase social charges and cut back on tax breaks to reduce its debt.

A future system could be created to bring French taxation closer in line with Germany, which, unlike France, has no wealth tax. Critics of wealth tax, l'impôt de solidarité sur la fortune (ISF), have argued that it drives the rich out of the country.

However, France has the third-highest number of millionaires in the world, behind the US and Japan, according to a new study by Crédit Suisse.

The bank says there are 2.2 million in France, representing nine per cent of the world total.

Last year, the ISF raised around €3.5 billion, a cost that must be recouped in any tax reorganisation.

The system will be reviewed next year, following a report from France’s spending watchdog, the Cour des comptes, on harmonising German and French taxation with a view to passing a new law in June 2011.

Budget minister François Baroin has stated the government is looking at raising the threshold on which people must pay wealth tax from €790,000 to €1.2m.

The head of the governing UMP party’s commission on social affairs, Pierre Méhaignerie, said taxes on capital gains and other sources of capital revenue would be introduced or go up to match. A rise in VAT has also been raised.