And you thought Canada’s tax regime was bad.
The French government presented a budget Friday that was heavy on taxes — including a controversial 75% income rate on high earners — but which critics said lacked fundamental reforms that could jumpstart economic growth.
President Francois Hollande’s cabinet defended the spending plan for next year, calling it a “fighting budget” that would win the “battle” against joblessness and help growth.
Like many European countries, France must tread a fine line between cutting the debts that dragged them into the current financial crisis and investing in the economy to spur growth.
The French economy, the second largest among the 17 countries that use the euro, has not grown for three straight quarters, the national statistics agency confirmed Friday. Unemployment has been on the rise for more than a year and stands at 10.2%.
Economists warn, however, that things could get much worse in France if it doesn’t get serious about slashing state spending and reforming stringent labour laws.
“This is a serious budget, it’s a leftist budget and it’s fighting budget,” Finance Minister Pierre Moscovici told French radio station Europe-1 Friday morning.
Because Hollande promised that he would slash the country’s deficit to 3% next year — a limit required by European rules — the government must find €30 billion in savings. One-third will come in spending cuts, with the rest in new or higher taxes on the wealthy and big companies, including a 75% tax on incomes over €1 million.
Among the other measures included are: a new income tax level at 45% for those making more than €150,000, an increase of capital gains taxes to bring them more in line with how salaries are taxed, and a cap on certain deductions for large companies on their income taxes.
The 75% tax will last for two years and has always been billed as a symbolic measure since it will bring in very little revenue. Several businessmen and politicians in the opposition have said that’s exactly what’s wrong with the 2013 budget: It sends the message that France doesn’t like the rich and isn’t open for business.
The budget is built around an expectation of 0.8% growth for next year. If growth misses the projections, more cuts could be needed later.
Moscovici conceded that most economists predict the French economy will grow just 0.5%, but said that if the European debt crisis stabilizes, France would meet its targets.
Here are some resources in case your rich clients are concerned about higher taxes: