Sarkozy Eyes New Tax On Wealth

by Ulrika Lomas, Tax-News.com, Brussels

19 November 2010

Confirming government plans to conduct a reform of taxation in France in a supplementary finance bill in Spring 2011, French President Nicolas Sarkozy insinuated that both wealth tax (l’impôt de solidarité sur la fortune – ISF) and the highly unpopular tax shield mechanism (le bouclier fiscal) could be abolished as part of proposals for reform.

Underlining the fact that France is in global competition, President Sarkozy stated that it was simply “unacceptable” to have a gap in competitiveness with Germany, France’s principal trading partner. Alluding to the decision to endeavour to harmonize the French and German systems of taxation, Sarkozy emphasized the need to make taxes in France comparable and compatible in order to prevent an exodus of capital, jobs and industry away from France.

Sarkozy pointed out the fact that Germany decided to abolish both its tax shield and wealth tax, explaining that there is no need for a tax shield mechanism if a country does not have wealth tax. France’s highly controversial tax shield mechanism, seen by many as a symbol of fiscal injustice, currently limits direct taxes in France to 50% of income.

Fully acknowledging the errors made over the course of the past few years in taxing wealth in France, President Sarkozy underlined the need to introduce instead a new tax levied on income and capital gains from assets, adding that this would be the axis of the reform.

Echoing remarks made recently by French Budget Minister and government spokesman François Baroin, President Sarkozy reiterated that there would be no tax rises in France, as the level of taxation is already higher than in neighbouring countries. Baroin categorically ruled out any increase in either corporate tax or income tax, and provided his assurances that neither value-added tax (VAT) nor social contributions (CSG and CRDS) would rise. According to Baroin, all of the discussions that have taken place in the French National Assembly on the subject have clearly demonstrated that the government’s line is not to touch taxes.

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