Inside Story

The fallout from France's supertax

Will a proposed 75 percent tax lead to an erosion of creativity and talent, and result in a significant brain drain?
Last Modified: 07 Jan 2013 11:13

Francois Hollande, the French president, has proposed a 75 percent tax rate on top earners, the highest in Europe.

The top court in France says the proposed supertax is unconstitutional but the French president is determined to tax the country's super-rich.

"[This] type of small-time socialism is only going to lead the brightest and the best to leave the country, and some of them are hitting the headlines like Depardieu or allegations recently about Jean-Michel Jarre, the musician, moving to London, some very successful businessmen like Bernard Arnaud…"

- Nabila Ramdani, a French journalist and commentator

But Hollande says the ruling will not change his mind, and has promised to rework the millionaire tax.

"More will still be asked of those who have the most," he said. "That's the sense of exceptional levy on the highest incomes, which will be amended following the Constitutional Council's decision – without changing its objective."

The move has provoked a storm of protest led by Gerard Depardieu, the French actor, who is making a stand against a proposed supertax on the rich in France.

The star of Green Card has moved to Belgium. But Belgium is not only the country welcoming him. Depardieu was handed a Russian passport during a private meeting with Vladimir Putin, the Russian president.

The actor, among a growing number of wealthy tax exiles seeking sanctuary abroad, has accused France's socialist government of "punishing success, creation and talent".

"Depardieu is not actually in a situation to complain about his taxes. The people who have to complain about their taxes in France are the 60 million who are going to see [a] VAT (value-added tax) increase of one or two percent in the beginning of next year."

- Sebastien Ramage, from the National Union of School Students

Not surprisingly, he has been pilloried in the French media and by government officials.
Jean-Marc Ayrault, the French prime minister, branded the actor's decision "pathetic and unpatriotic".

But the fact remains that if Hollande gets his way, anyone earning over one million euros could face big tax hikes.

There are concerns this could lead to a 'brain drain' - an exodus of entrepreneurs, capital, businesses and young people.

In this episode Inside Story examines tax exiles, tax avoidance and tax evasion.

Joining the discussion with presenter Shiulie Ghosh are guests: Nabila Ramdani, a French journalist and commentator; Sebastien Ramage, from the international office for the National Union of School Students (UNL); and Jean-Pierre Diserens, the general-secretary of the Convention of Independent Financial Advisors.

"France is a little special because when we look at the tax rates applicable there the government knew that certain people would react negatively to being taxed 75 or 85 percent, and eventually go somewhere where they're treated with more respect. The question is who owns the capacity and the added value that one individual is capable of producing, be it an artist, an industrial producer or whatever added value you're able to create."

Jean-Pierre Diserens, a financial adviser

Taxation in France:

  • The supertax was one of Hollande's campaign promises, and it remains his goal as he tries to cut the country's huge public deficit.
  • The national debt in France has gone from 64 percent of its GDP to more than 90 percent in five years – that is a deficit of around $2.3bn.
  • The supertax would have only applied to about 1,500 people in France. After the court ruling the proposal will now have to be reframed and would affect many more.
  • The government insists that nine out of 10 earners will not see any income tax increase.
  • But taxes are threatening to drive more people out of France. Currently there are an estimated 1,000 tax exiles living abroad.
  • Requests to leave are already up by as much as 500 percent.

Tax rates across Europe:

Sweden – the government takes 56.6 percent of earnings above $320,000
Denmark – has a similar figure but the rate kicks in far lower at $74,000
Spain – wealthy citizens have to hand over 52 percent of earnings above $390,000
Belgium – the top rate is capped at 50 percent but starts at an income of just $47,000
The UK – the top rate of 50 percent kicks in for earnings of more than $243,000 but that will drop to 45 percent in April
Russia – in contrast to all the above, it has a flat rate of 13 percent across the board


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