French Tax Hikes Target Business and Wealthy Amid Stiffening Crisis

The government of French Socialist President François Hollande reveals nearly $10 billion in new tax hikes largely affecting the rich and companies as part of a emphatically leftist agenda revealed July 4.

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Jacques Demarthon / AFP / Getty Images

French Prime Minister Jean-Marc Ayrault delivers a speech at the US Embassy in Paris, on July 4, 2012, during a ceremony for the July 4th Independence Day celebrations

Were any more proof needed that infuriating conservative opponents is something leftist just naturally do, consider moves by France’s new Socialist government. In rolling out its initial policy objectives July 4, the cabinet of Prime Minister Jean-Marc Ayrault didn’t stop with sending the right into a tizzy with a budget revision featuring $9.45 billion in new tax revenues. It also pledged those increases will be shouldered primarily by the rich and big companies.

And just in case that wasn’t vexing enough, Ayrault’s government also outlined progressive social reforms that France’s former ruling conservatives have long rejected. Those include passing laws enshrining marriage and adoption rights for gay couples; giving legal foreign residents the right to vote in local elections; and replacing the confrontational, swagger-prone authoritarianism favored to battle crime by former President Nicolas Sarkozy with a lower key, pedagogic, and cooperative approach to law-and-order.

It all made it very clear this  just isn’t going to be a real happy time to be a conservative in France. And that’s something ruling leftists seem to love as much as holding power for the first time in a decade.The most pressing focus of fury on the French right is Ayrault’s revision of the 2012 budget adopted by Sarkozy’s government. Earlier this week, an audit found the existing budget missing between $7.6 billion and $12.5 billion if the Socialist leadership fulfill promises to reduce France’s budget deficit from 5.2% to 4.5% this year. To address that, Ayrault revealed an array of tax increases worth $9.45 billion for 2012 alone. Any tax jolts are usually enough to make any country’s conservatives fume, but the kind Ayrault has table are the stuff of rightist nightmares.

(MORE: France Needs $43 Billion to Meet Debt Targets)

First among the new measures is a proposed increase of income tax rates on households earning more than $1.25 annually to 75%—a huge surge over France’s current 46.7% ceiling, and more than three times the average levels France’s affluent actually. Next is Ayrault’s reversal of Sarkozy’s cut in taxes on accumulated wealth exceeding $1.6 million, and an additional rise in inheritance duties. By contrast, the government cancelled a Sarkozy-passed increase on value-added tax paid by consumers—a step the former president took to offset corresponding reductions in salary-linked levies he granted to businesses. That break to bosses is now fini.

Companies will feel the Ayrault government’s pinch in other ways, too. Sarkozy-era tax exemptions on wages paid for over-time work will be ended for businesses with more than 25 employees, and larger corporations will be forced to pay part of their corporate taxes on a sped up schedule. Energy companies will be hit with a one-off tax on oil reserves. All businesses, meanwhile, will be taxed 3% on any dividends paid to shareholders. Existing levies charged to financial transactions soon will be doubled to 0.2%.

Attentive to Socialist President François Hollande’s promise to mitigate austerity by shifting the pain of meeting France’s financial challenge higher up the income ladder, Ayrault vowed nearly 75% of all personal tax increases would be born by the richest families. But that avowed targeting of the wealthy and big companies only got conservatives howling louder. “These fiscal measures will create a shock that, little by little, will gradually suffocate what little growth we have” warned former conservative Finance Minister François Baroin, referring to France’s estimated 0.4% growth level for 2012.

(MORE: Election of French President Francois Hollande Heralds End to Austerity)

“It’s completely false to say these tax increases will only affect the wealthiest people,” echoed Gilles Carrez, a conservative legislator who sits on the French parliament’s finance committee–seeking to rob Ayrault any popular applause that might arise over France’s wealthiest people being squeezed. “Most of it will fall on the middle class.” Those anticipated protests from the right notwithstanding, the choices Ayrault’s government was left with were fairly slim. This week’s audit showed a total shortfall of nearly $53 billion over the next two years—an estimated $43 billion looming in 2013 alone.  Intent on meeting Hollande’s promises to reduce France’s budget deficit to 4.5% this year–and to 3% in 2013–a rise in taxes became a no-brainer.

Meantime, with Hollande having already announced a freeze on government spending levels for 2012, his only options left was to enact a humiliating flip-flop by making massive cuts, or raising taxes on moderate earners along with the rich. However, Hollande has repeatedly ruled both of those out in the name of what he calls social “fairness”, and has vowed to make France’s wealthy people and businesses tote a financial load amid crisis he claims they were spared under Sarkozy.

But despite the strong ideological message sent with Ayrault’s economic measures, there’s awareness even within Socialist ranks that soaking the rich won’t be the total hedge against general belt-tightening some like to suggest. Given the audit’s warning that 2013 will require even bigger efforts to meet deficit reduction targets, it’s evident increased revenues will also need to be accompanied by kinds of cuts being called “austerity” everywhere else but in France. The great crunch therefore awaits.

(MORE: After Socialist Romp in Elections, France’s Conservatives Face Existential Crisis)

“The initial effort will come from tax revenues, while the reduction in spending will be applied across the government’s entire term,” acknowledged Socialist Budget Minister Jérôme Cahuzac–who even before Hollande’s election famously responded to questions about what the left would do if returned to power by growling, “if you’re trying to get me to say it’s going to be hard, then it’s going to be hard”.

Which is why the Socialists are seeking to get public opinion on their side before the vice tightens. In addition to forestalling spending cuts usually associated with right wing governments, the Ayrault cabinet is also loudly broadcasting the markedly progressive nature of its social policies. One of those involves restoring local police forces to France’s troubled suburban housing projects—patrols Sarkozy got rid off as being too chummy with locals (despite their proven effectiveness in reducing crime and networking with concerned residents). Ayrault also announced a target of building 150,000 new dwellings per year in the over-crowded and blighted projects, and extending voting rights in municipal elections to legal aliens.

Most notable of all, however, were Socialist plans to legalize gay marriage, and open the way for the adoption of children by gay couples—both of which are currently prevented by French law. Those changes were among Hollande’s campaign promises, and sharply contrasted the steadfast refusal by French conservatives to revisit gay rights. True to that record, rightist politicians hotly denounced those plans as undermining French families, and opening a legal Pandora’s box. Former Urban Affairs Minister Christine Boutin went so far as to denounce the proposal as “a ticking time bomb” threatening “the destruction of society”.

That may have been one of the headier responses to the Ayrault agenda, but it was resonant with the general din it arose from–a thunder of protest that won’t be going away any time soon. Indeed, in one way or another, cries of anger, outrage, treason—and even the end of the world—are likely to be deafening Socialist ears from the right for a long, long time to come. For now, at least, Hollande and Ayrault wouldn’t have it any other way.

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