France’s proposed 75% tax on millionaires affects only a few thousand people, at most.
But already the 2013 budget is proving controversial, with some critics saying the new policy will drive talent out of France.
The measure comes as Francois Hollande’s Socialist Party attempts to cut down the government’s deficit to 3% from 4.5% this year. Earnings over €1 million ($1.29 million) euros will be taxed at a 75% rate, and those over €150,000 will be taxed at a rate of 45%. The government believes that the new tax will bring in half a billion euros.
The new budget attempts to reduce yearly expenditures by €30 billion in an effort to demonstrate that one of Europe’s most powerful economies is financially disciplined. France’s public debt sits at about 91% of GDP, and the country has already missed earlier goals to reduce its deficit to zero by 2017. Some analysts worry, however, that aggressive cost-cutting measures will take a toll on economic growth, which already appears to be slowing.
Still, Hollande kept his promise not to dramatically slash spending on social programs such as pensions and public salaries. Instead the plan contains €10 billion from new taxes on big companies in 2013, and €10 billion on the country’s highest earners.
A further €10 billion is expected from freezing government spending, not including debt repayment and pensions. “This is a fighting budget to get the country back on the rails,” Prime Minister Jean-Marc Ayrault said.“
Another €2.5 billion is supposed to come from a curb on state health spending. (paywall), while new tax measures from this year are supposed to raise more than €4 billion.
The budget represents the nation’s biggest budget reductions in 30 years.