PARIS – When President Francois Hollande unveiled a “super-tax” on the rich in 2012, some feared an exodus of business, sporting and artistic talent. One adviser warned it was a Socialist step too far that would turn France into “Cuba without sun.”
Two years on, with the tax due to expire at the end of this month, the mass emigration has not happened. But the damage to France’s appeal as a home for top earners has been great, and the pickings from the levy paltry.
“The reform clearly damaged France’s reputation and competitiveness,” said Jorg Stegemann, head of Kennedy Executive, an executive search firm based in France and Germany.
“It clearly has become harder to attract international senior managers to come to France than it was,” he added.
Hollande first floated the 75 percent super-tax on earnings over €1 million ($1.2 million) a year in his 2012 campaign to oust his conservative rival, Nicolas Sarkozy. It fired up left-wing voters and helped him unseat the incumbent.
Yet ever since, it has been a thorn in his side, helping little in France’s effort to bring its public deficit within European Union limits and mixing the message just as Hollande sought to promote a more pro-business image. The adviser who made the “Cuba” gag was Emmanuel Macron, the ex-banker who is now his economy minister.
The Finance Ministry estimates the proceeds from the tax amounted to €260 million in its first year and €160 million in the second. That’s broadly in line with expectations, but tiny compared with a budget deficit that had reached €84.7 billion by the end of October.
A first version of the tax payable by the earners themselves was thrown out by the Constitutional Court as punitive. A final version obliged companies to pay the levy instead.
French soccer clubs briefly threatened to go on strike, and actor Gerard Depardieu took up Russian residency in a one-man protest over the French tax burden, among the highest in the world. Others were making more discreet arrangements.
“A few went abroad — to Luxembourg, the U.K.,” said tax lawyer Jean-Philippe Delsol, author on a book on tax exiles called “Why I Am Going To Leave France.”
“But in most cases, it was discussed with their company and agreed to limit salaries during the two years and come to an arrangement afterward,” he told Reuters by telephone.
Hollande and his government have since sought to relieve business of around €40 billion in taxes and other charges, as unemployment at over 10 percent drives home the urgent need to attract investment to the sickly French economy.
It was no accident that Prime Minister Manuel Valls — alongside Macron the main reformer in Hollande’s Cabinet —chose a visit to London in October to confirm that the super-tax would not be renewed: his British counterpart, David Cameron, famously offered to “roll out the red carpet” to French tax exiles.
But Delsol said the saga had made his clients more nervous about investing their time and money in France and had only added to mistrust of a complex tax system that successive governments have failed to reform.
“People have lost confidence,” he said. “That is not something you can restore overnight.”