UPDATE 3-French court rejects 75 pct millionaires' tax

Emile Picy and Catherine Bremer
Reuters Middle East

* 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

public deficit.

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.


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

stalled growth.

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


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