75% Tax Rejected by Constitutional Council

On December 29, the constitutional council came to a decision on how the 2013 fiscal budget conforms to the Constitution.

In this decision, they rejected the controversial 75% tax on salaried income exceeding 1 million euros. They pronounced that it “violates the principle of equality.” This tax, called “an exceptional contribution of solidarity,” and presented in Article 12 of Hollande’s original fiscal budget, would have been imposed for 2 years on individuals within that income bracket.

According to Prime Minister Ayrault, the 75% tax will be “re-established.”
Photo: Flickr.com/jmayrault

The following example was given by the constitutional council to explain how this tax would have caused a “fracture in the equality of the grounds for contribution:” A family with one spouse making an income of 1.2 million euros and the other spouse not making anything would have seen this tax affecting them, whereas a family with each spouse making 900,000 euros each would not have been affected by the tax.

This fiscal policy would have only affected 1,500 people, including the infamous French comedian Gerard Depardieu who recently committed “fiscal exile” to Belgium. Although this decision seems final, Prime Minister Jean-Marc Ayrault said on December 29 that the 75% tax will be “voted in a timely manner to be applied to 2013 incomes,” adding that the measure will be “re-established.”

The government will bring forward a new layout for the fiscal budget of 2014, which will be presented in September 2013. President François Hollande is not in a rush to fill this gap, because the policies the Council has ruled out would have generated between 300 to 400 million euros and would only have accounted for a small percentage of France’s GDP.

Though this infamous fiscal regulation and a few others have been ruled out by the constitution, Hollande’s principal financial trajectory is maintained. The fiscal budget does indeed put in place several of the government and Parliament’s choices. First, it does significantly increase the mandatory state revenue – due to the budget given for tax and financing social security – that has risen by about 30 billion euros.

Secondly, the financial budget for 2013 has imposed a tax of the same level of the income tax on capital gains which is now more significant than those imposed on salaried income. The third main outcome of this fiscal budget for 2013 has increased the number of fiscal “brackets” to 7 – meaning that there is a greater difference in the taxes imposed for individuals with different incomes. This produces a consequent increase in the rate of tax on wealth.

Among the principles of the fiscal budget that have been deemed to conform with the Constitution include Article 3, stating a new tax rate of of 45%, imposed on the highest division prior to those with incomes above 1 million Euros and now imposed on those making over 150,000 euros per year. Another aspect of the budget that conforms to the Constitution is Article 14, which increases the tax on capital gains to a rate similar to that of the “tax of solidarity on wealth” that was in place until 2011.

Though it may seem that the censor imposed by the constitutional council has ruled out the emblematic promise of Hollande’s campaign, his objective to increase the fiscal budget has, for the most part, come through.