French government may water down 75 pct tax after setback

Mon Dec 31, 2012 4:23pm EST
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By Catherine Bremer

PARIS (Reuters) - The derailment of President Francois Hollande's 75 percent millionaires' tax presents a chance to water down a scheme which hurt France's image with investors but the Socialist leader is unlikely to give up without a fight.

Hollande pledged to press ahead with a redrafted tax on the wealthy next year after the Constitutional Council's decision on Saturday to strike down the emblematic rate on income over 1 million euros ($1.32 million).

But the Socialist president, who won office in May, avoided referring specifically to the 75 percent rate which has made some of France's wealthy, including film star Gerard Depardieu, announce they will move abroad.

"We will still ask more of those who have the most," Hollande said in a televised New Year's address on Monday, without providing details of the new proposal.

Among bankers at least, expectations are growing that the tax may look very different when the government comes back with a revised plan even if the original had strong public backing.

"I suspect this tax will be shelved," said Philippe Gudin, a France economist for Barclays and a former Treasury official.

"For the (low amount of) revenue it would raise, the outcry it has provoked and the damage it has done to France's image, it would be more sensible if it were quietly buried."

The Council said the tax was unfair as it would hit married couples where only one partner earned above a million euros but would not affect couples where each earned just under a million.   Continued...

France's President Francois Hollande gestures as he arrives to deliver his New Year's speech at the Elysee Palace in Paris, December 31, 2012. REUTERS/Lionel Bonaventure/Pool