* Constitutional Council rejects 75 pct upper income tax
* Setback for Hollande, but government to redraft proposal
* Council says objects to unfairness in application of tax
PARIS, Dec 29 (Reuters) - France's Constitutional Council on
Saturday rejected a 75 percent upper income tax rate to be
introduced in 2013 in a setback to Socialist President Francois
Hollande's push to make the rich contribute more to cutting the
The Council ruled that the planned 75 percent tax on annual
income above 1 million euros ($1.32 million) - a flagship
measure of Hollande's election campaign - was unfair in the way
it would be applied to different households.
Prime Minister Jean-Marc Ayrault said the government would
redraft the upper tax rate proposal to answer the Council's
concerns and resubmit it in a new budget law, meaning Saturday's
decision could only amount to a temporary political blow.
While the tax plan was largely symbolic and would only have
affected a few thousand people, it has infuriated high earners
in France, prompting some such as actor Gerard Depardieu to flee
abroad. The message it sent also shocked entrepreneurs and
foreign investors, who accuse Hollande of being anti-business.
Finance Minister Pierre Moscovici said the rejection of the
75 percent tax and other minor measures could cut up to 500
million euros in forecast tax revenues but would not hurt
efforts to slash the public deficit to below a European Union
ceiling of 3 percent of economic output next year.
"The rejected measures represent 300 to 500 million euros.
Our deficit-cutting path will not be affected," Moscovici told
BFM television. He too said the government would resubmit a
proposal to raise taxes on high incomes in 2013 and 2014.
The Council, made up of nine judges and three former
presidents, is concerned the tax would hit a married couple
where one partner earned above a million euros but it would not
affect a couple where each earned just under a million euros.
UMP member Gilles Carrez, chairman of the National
Assembly's finance commission, told BFM television, however,
that the Council's so-called wise men also felt the 75 percent
tax was excessive and too much based on ideology.
FRANCE UNDER SCRUTINY
Hollande shocked many by announcing his 75 percent tax
proposal out of the blue several weeks into a campaign that some
felt was flagging. Left-wing voters were cheered by it but
business leaders warned that talent would flee the country.
Set to be a temporary measure until France is out of
economic crisis, the few hundred million euros a year the tax
was set to raise is a not insignificant sum as the government
strives to boost public finances in the face of stalled growth.
Hollande's 2013 budget calls for the biggest belt-tightening
effort France has seen in decades and is based on a growth
target of 0.8 percent, a level analysts view as over-optimistic.
Fitch Ratings this month affirmed its triple-A rating on
France but said there was no room for slippage. Standard &
Poor's and Moody's have both stripped Europe's No. 2 economy of
its AAA badge due to concern over strained public finances and
The International Monetary Fund recently forecast that
France will miss its 3 percent deficit target next year and
signs are growing that Paris could negotiate some leeway on the
timing of that goal with its EU partners.
The INSEE national statistics institute this week scaled
back its reading of a return to growth in the third quarter to
0.1 percent from 0.2 percent, and the government said it could
review its 2013 outlook in the next few months.
Saturday's decision was in response to a motion by the
opposition conservative UMP party, whose weight in fighting
Hollande's policies has been reduced by a leadership crisis that
has split it in two seven months after it lost power.
The Constitutional Council is a politically independent body
that rules on whether laws, elections and referenda are