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Politics

French government pledges revised ultra-rich tax model

Francois Hollande and his allies must now seek a revised upper income tax rate for the wealthiest in France, after an initial version was ruled unconstitutional. The tax was among Hollande's key campaign pledges.

French President Francois Hollande did not comment publicly on Saturday after his proposed 75-percent tax rate for the country's top-earners was rejected by France's Constitutional Council. However aides close to the president told the French media that the president was "serene" after the setback.

Prime Minister Jean-Marc Ayrault faced the music in public instead, pledging a revised version of the bill before the end of 2013.

"The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council," Ayrault said on Saturday. The council, nicknamed the "wise ones" in France, is comprised of former political, judicial, and civil leaders. It is charged with verifying the legality of draft laws and solving electoral disputes.

The rejected bill proposed a 75-percent rate for individuals earning over 1 million euros ($1.32 million) per year.

Technical blunder, not a rate rejection

Income tax in France is not usually levied against individuals, but rather households. The Constitutional Council ruled that the proposed 75-percent tax for the super-rich was not legal, because the rule was applied to individuals.

In other words, a family with one wage-earner bringing home 1.1 million euros per year would have paid the higher rate, while another household with two people each earning 900,000 euros would not.

The 75-percent tax rate itself, a source of outrage among the wealthy and the center-right opposition in France, was not rejected by the council.

As well as prominent actor Gerard Depardieu, who recently moved to Belgium in protest of the proposal, the French Football League was among the harshest non-political critics of the move.

Symbolic pledge, 'marginal' impact

Prime Minister Ayrault's minister charged with budget affairs, Jerome Cahuzac, told newspaper Le Monde that the setback would mean losses of between 400 and 500 million euros for the French government. He described this figure as "most certainly marginal" against the backdrop of total government revenues of around 300 billion euros.

Comparatively conservative newspaper le Figaro wrote in an analysis article after the verdict that the ultra-rich tax was a symbolic legislation as part of Hollande's election campaign, not a crucial new source of revenue. "Perhaps it was the very proposal that would have most seduced the left of the left," le Figaro's Beatrice Houchard wrote.

France is seeking to rein in public sector borrowing, and Hollande campaigned heavily on the idea that the country's wealthiest should contribute more towards this end.

Hollande is trying to balance higher taxes and reduced spending with encouraging economic growth; France has an unemployment rate of more than 10 percent, and only squeaked out of recession in the third quarter of 2012, unexpectedly logging meager growth for the July-September period.

msh/jr (AFP, dpa, Reuters)