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French govt backs 75% tax rate, scraps exec pay cap

Text by: Sam BALL
3 min

Businesses rather than employees will foot the bill for a new 75 percent tax on salaries over €1 million, French Finance Minister Pierre Moscovici said in an interview with Les Echos on Thursday, while a plan to cap directors’ pay has been dropped.


French businesses will face a 75 percent tax on employees’ salaries above €1 million a year under new legislation set to be introduced by the country’s government in 2014.

However, the government will stop short of introducing a cap on executive pay in the private sector, France’s Finance Minister Pierre Moscovici revealed in an interview with French daily Les Echos published on Thursday.

Moscovici said that the new tax will be submitted before the country’s parliament as part of next year’s budget and will stay in place for a period limited to two years.

“After several months of consultation, I decided to focus legislative action on the contribution of 75 percent tax on wages exceeding €1 million, to be paid by the employer,” the finance minister told Les Echos.

“We will not go beyond that: there will be no specific law on the governance of companies.”

Hollande forced to drop ‘excessive’ tax on employees

The decision to tax businesses rather than employees represents a bid by France’s ruling Socialist Party to salvage what had been one of President François Hollande’s flagship policies when he came to power last year.

Hollande had initially promised to introduce a so-called ‘super-tax’ on wages above €1 million, to be paid directly by earners themselves.

But in an embarrassing setback, the president was forced to return to the drawing board after France’s highest legal body, the Constitutional Council, overturned the policy, which it criticised as “excessive” and a “breach of equality of taxes”.

Hollande revealed in a television interview in March that the policy would be repackaged with a greater degree of the tax burden placed on employers, but did not go into further detail.

The move may face opposition from critics who believe higher corporate taxes could hinder business growth at a time when the French economy is struggling and unemployment is at record highs.

Earlier this month, it was revealed that France’s economy has officially fallen back into recession with GDP dropping by 0.2 percent in the first quarter of 2013 following a similar fall in the final quarter of last year.

Meanwhile, the number of unemployed workers in France rose to 3.22 million in March, beating a previous record high set in 1997.

Business ‘at the heart of our economic policy’

Despite the new tax, however, Moscovici insisted that helping businesses remains “at the heart of our economic policy”.

“We want to help create wealth and jobs, to invest and hire,” he said.

To this end, the finance minister pointed to the decision to drop a mooted bill placing an upper limit on executives’ pay in the private sector.

Instead, the government is opting for a path of self-regulation via a new code of corporate governance currently being discussed with business leaders and that will likely include a measure allowing shareholders to have a say in director pay.

"We prefer to go with 'a demanding auto-regulation', but be warned, if the measures announced are not up to scratch we still have the possibility of legislating,” added Moscovici.

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