The abolition of the French wealth tax might be official in 2011
Wealth tax, also known as the ‘’solidarity tax on fortunes’’ is paid at a rate of 0.6–1.8% on most assets worth more than €790,000, including property, jewellery, race horses, wine, boats and private jets (though not works of art). Wealth tax on its own raised €3.3 billion last year.
Jacques Chirac, prime minister of France at the time, promised to get rid of the tax in 1986 but then went on to lose the presidential elections two years later. Since then no other French politician has dared to touch the tax. However, current president Nicolas Sarkozy is thinking of abolishing the tax by next year.
Because of rising property prices, it now touches more than the super-rich with an estimated 560,000 taxpayers affected- 42% more than in 2005. And it has prompted many of the truly rich, like the French singer, Mr Hallyday, to flee. But the French, many of whom see riches as vulgar, have little sympathy for such types. One survey by BVA, a pollster, suggests that 64% are against getting rid of the wealth tax.
It may sound odd that Mr Sarkozy chooses 2011, a pre-election year, as the right time to strike. The reason behind this is that he is trapped by an unpopular fiscal rule known as the tax shield. Mr Sarkozy introduced a cap at 50 % of the overall tax rate on all personal income, partly to tempt tax exiles home. But, thanks to uncharacteristically deft lobbying by the left, it has become a symbol of fiscal injustice, as the wealthy collect refunds. For example, Liliane Bettencourt, the billionaire heiress to the L’Oréal cosmetics empire, received a cheque from the treasury worth €30m this year.
The matter now is to use the abolition of the tax shield to bring about the end of the wealth tax. The BVA poll suggests that a majority would back scrapping both, if this were combined with a rise in the top marginal income-tax rate. Mr Sarkozy has ruled this out, but wants a new tax levied on revenue from assets, rather than on the assets themselves. A new scheme should be unveiled by next June.
Germany got rid of its wealth tax in 1997 and is more competitive than France. To what Mr Sarkozy argues, the French should follow. “I cannot accept a deficit in competitiveness with our main economic partner, Germany,” he said recently. “I want to lay the ground for a relatively homogenous fiscal zone.” This looks like a heroic attempt to impose reform on the French by dressing it up as European “tax harmonisation”. An official commission is now looking into how to align France’s tax structure with Germany’s. France is trying to legitimise its reforms “by copying the German model”, says one top French official. As long as nobody expects Germany to return the favour.