France hints at lowering 75% tax rate

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(Financial Times) -- France's socialist government has hinted that a replacement for its controversial 75 per cent income tax bracket, struck down late last month by the country's constitutional council, may be at a lower rate but imposed for the rest of its five-year mandate, not just two years as previously proposed.

It is also to divert €2bn in extra funds into state-backed job creation schemes in a bid to meet President François Hollande's bold promise to reverse a trend of fast-rising unemployment by the end of this year.

Mr Hollande and other ministers have so far pointedly avoided specifying what rate would be set for a revamped supertax, leading to speculation that it might be watered down.

The move to impose a 75 per cent marginal rate on incomes above €1m a year, coupled with steep rises in wealth and capital gains taxes, caused a political storm in France, culminating in the apparent defection of film star Gérard Depardieu.

Putin offers passport to actor Depardieu

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France's most famous actor travelled to Russia at the weekend where he met Vladimir Putin, president, and was handed a promised Russian passport.

Jérôme Cahuzac, France's budget minister, said on Sunday: "I find it a little ridiculous that for tax reasons, this man has gone into exile so far to the east."

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Mr Cahuzac reiterated in a television interview that the government would formulate a replacement for the 75 per cent measure, which was intended to "incite a bit more prudence and decency in a very rare number of leaders", in order to reduce pay gaps between workers and executives.

He said "part of the parameters" being considered was to run a newly adapted supertax for the rest of Mr Hollande's term, rather than limit it to two years. But he hinted that the rate would be lower than 75 per cent, pointing out that the constitutional council had indicated that a total tax burden above that level, including other levies, "could be judged as a confiscatory rate" by the council.

He added that the government would not impose any further new taxes after this year. "Tax stability from now is the policy of the government," he said.

Despite the furore over tax, the chief political threat facing the government is unemployment, which has risen sharply in recent months to more than 10 per cent of the workforce.

An Ifop poll published in Sunday's Journal du Dimanche showed 75 per cent of voters doubted Mr Hollande would be able to fulfil his promise to "invert the curve" of unemployment by the end of the year.

Mr Cahuzac said €2bn would be diverted from elsewhere in the 2013 budget to boost an existing €6.5bn contingency fund with the intention of using the money to boost government employment projects.

Since coming to power last May, the government has moved to implement Mr Hollande's campaign promises to provide 100,000 starter jobs this year for young people with low qualifications and provide state backing for a "contract of the generations" aimed at generating over five years 500,000 permanent jobs for youngsters in companies, which would also pledge to retain a matching 500,000 older workers.

Apart from state-backed schemes, Mr Hollande is looking to reforms of the country's rigid labour market regime to provide some relief. Employers and trade unions are set to hold a new round of talks on a potential deal later this week, but remain at odds over how to strike a balance between business demands for more flexibility and union stress on job security.

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