France Proposes High Income Levy

by Ulrika Lomas, Tax-News.com, Brussels

18 May 2010

The French government has finally made public its policy paper on pension reform, which confirms that an exceptional levy will be imposed on high-income earners and on income derived from capital.

In a bid to bring a “lasting response” to the difficulties of financing pension schemes in France, the government has unveiled plans to levy a supplementary contribution on top earners as well as on income derived from capital. Marking a significant blow, the government has also made clear that the proposed contribution will fall outside of the tax shield or “bouclier fiscal”. Emblematic of French President Nicolas Sarkozy’s era, the highly controversial tax shield prevents taxpayers in France from paying more than 50% of their income in tax.

Determined not to reduce competitiveness in France, the government has, however, firmly ruled out any general rise in taxation or social contributions, maintaining that this would merely serve to reduce the quality of life for individuals in France and to increase unemployment. It also believes that the introduction of a contribution levied on the value added by a company, as proposed by certain parties among the Left, would have “negative consequences” for industry in France.

In an attempt to tackle the demographic shock currently facing the country’s pension system, without penalizing the quality of life for individuals in France, or negatively impacting on growth or employment, several possibilities are now being explored; these include increasing the length of time that pension contributions are made, and raising the legal age of retirement. The government is due to present its conclusions in June.

The government has ruled out the idea of lowering pensions or of calling into question future pension increases arising from promotions, and has emphasized that any measures will be implemented progressively. It has pledged that existing rules will continue to apply for those aged 60 and over, whether they are already retired or are still working.

France’s Employment Minister Eric Woerth is due to meet with unions and employers on May 17 for a second round of negotiations.

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