January 1, 2013 1:41 pm

Hollande insists rich must pay more tax

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François Hollande has pledged to retain high taxes on the rich and made reversing a sharp rise in unemployment his top priority for 2013 in a bid to regain political momentum as he battles a flagging economy and low opinion poll ratings.

In his first direct comments on the issue, the French president said a decision by the constitutional council to block his flagship 75 per cent marginal tax rate on incomes of more than €1m a year would not alter his socialist government’s intention to make the wealthy bear much of the burden of restoring the country’s public finances.

Speaking to the nation in a traditional New Year’s eve address, Mr Hollande avoided making a specific commitment to retain the top bracket at 75 per cent as the government wrestles with how to respond to the council’s ruling.

There has been speculation that the measure, a key election pledge by Mr Hollande due to be in place for two years, could be watered down or even dropped, despite insistence to the contrary by ministers.

Although popular among the wider electorate, the tax, which would raise little more than €200m a year, became a symbol for business leaders and others protesting bitterly that the government’s tax policies were driving wealth creators out of the country.

Mr Hollande said: “We will always ask more from those who have most. That is the intention of the exceptional contribution by the highest income earners, which will be adjusted following the constitutional council’s decision, without changing the objective.”

The constitutional council’s decision prompted accusations of incompetence on the part of the government, including from its own supporters, adding to the pressure on Mr Hollande after almost nine tough months since he took office.

With growth stalled and unemployment rising to more than 10 per cent of the workforce, his approval ratings languish at about 35 per cent.

Jean-François Copé, newly elected president of the opposition UMP party, said Mr Hollande “lacks credibility and is leading the country up a dead end”.

In his address, Mr Hollande acknowledged there had been “bumps and upsets” since he took office, but attempted to put an optimistic shine on the coming year, saying the eurozone had been “safeguarded” by actions taken to underpin stability and growth since he came to power.

“All our powers will be bent towards a single goal – inverting the unemployment curve within a year from now. We must succeed at all costs,” he said.

He repeated a promise to bring in legislation to reform France’s highly rigid labour market if talks currently under way between employers and trade unions failed to produce an agreement in the coming weeks.

A move to introduce more German-style flexibility to the labour market has been a key demand of French business, France’s European partners and international institutions such as OECD and the International Monetary Fund, which regard it as vital to revitalising the French economy.

The government is expected to take its time before revealing its detailed response to the constitutional council’s tax ruling. A clear dilemma will be how to respond to the council’s insistence than any such measure should be applied to households, not individuals, without sharply increasing the number of those affected or being forced into a politically embarrassing reverse on the rate.

Although the council did not reject the 75 per cent rate itself, but the way it was to be imposed, it also rejected as “excessive” some other tax measures, including on share options, that would have imposed an effective rate of about 75 per cent.

The UMP, which brought the case to the council, says this indicated that the council could again strike down the 75 per cent bracket if the government insisted on retaining it.

Those leaving the country to escape the new taxes include the actor Gérard Depardieu and a number of entrepreneurs.

On Tuesday, Jean-Michel Jarre, the French musician, said he was considering setting up an electronic musical academy run by one of his commercial ventures in ‘Tech City’, an east London technology district, after discussions on the issue with the office of David Cameron, prime minister, who recently said he would “roll out the red carpet” to French businesses escaping Mr Hollande’s tax regime.

But Mr Jarre said in a statement this had nothing to do with political developments in France. He had no intention of becoming a tax exile, his entourage was reported to have told AFP, the French news agency.

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