Meet France's New SUPERTAX!
France is far from escaping the economic woes plaguing all of Europe.
The nation's public debt is 91 percent of the economy – a postwar record.
Growth has been at zero for nine straight months, and consumers increased savings from 16 percent of their income to 16.4 percent. Spending fell 0.8 percent last month.
Unemployment is at a ten-year high and still going up, and even though government spending and business investments had been picking up, the trade balance worsened.
A big step was needed, and a big step was what President Francois Hollande's Socialist government decided to take.
On Friday, the French government revealed a 2013 budget. The budget aimed to recover $39 billion, narrow the deficit from 4.5 percent to 3.0 percent, and achieve next year's growth target of 0.8 percent.
But the budget has received heavy criticism for its main component: a super-tax on businesses and the rich.
Individuals earning over one million euro, or roughly $1.29 million, will pay a temporary 75 percent tax, and a 45 percent tax will be imposed on revenue over 150,000 euro, or $193,830. Tax increases should contribute 20 billion euro to the plan ($26 billion).
There is also a freeze on high public spending, which should save 10 billion euro ($13 billion).
The plan immediately sparked criticism.
“The ambitions that were flagged are very audacious,” said Philippe Waechter at Natixis Asset Management. “I struggle to see how we'll find the growth needed in 2013 and afterwards.”
The government had set an initial target to bring deficit down to zero percent of GDP by 2017, but this has been revised up to 0.3 percent. The budget plan is just the first step in achieving this.
For businesses, there will also be a cut in a number of tax breaks, including what percentage of a loan is tax-deductible and a cut in capital gains tax breaks.
"The government is impeding investment and so will block innovation,” Entrepreneurs Club head Guillaume Cairou said of the preference for raising taxes rather than cutting spending.
“France is sick because of the model it has...but is choosing to preserve it.”
Hollande has received criticism since the election. The economy has slowed further and unemployment has gone up – not down.
This budget plan is just one more thing for which critics will fault him.
Actor Will Smith is among these critics. He explained his view on taxes to a French interviewer:
"I have no issue with paying taxes and wahtever needs to be done for my country to grow. I believe very firmly that my ability to sit here - I'm a black man who didn't go to college, yet I get to travel around the world and sell my movies, and I believe very firmly that America is the only place on Earth that I could exist. So I will pay anything I need to pay to keep my country growing."
But then he was informed of France's budget plan. Watch his reaction:+9
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