France facing exodus of wealthy

Do the French tax hikes reflect a deeper hostility towards the "super-rich"?

Hollande sworn in as French president 370 (photo credit: REUTERS)
Hollande sworn in as French president 370
(photo credit: REUTERS)
Francois Hollande, the French president, is facing significant criticism this week for his plans to hike taxes further on the so-called “super-rich.”  In protest, a number of high-profile high-earners have announced that they will leave France and move abroad to avoid the new punitive rates.
As the French deficit ballooned in recent years, the question of how to balance the budget has taken center stage in French politics.  Hollande’s proposed budget for 2013 includes a 75 percent tax rate for anyone earning over one million Euros ($1.6 million) a year.  In addition, Hollande is also planning to raise the annual wealth tax and the capital gains rate, as well.
How attractive will these eye-watering tax hikes make the French economy?  Are they more a reflection of a deeper hostility towards personal initiative and wealth creation than a viable solution for the deficit?
As the budget winds its way through the French parliament, high-earners have already begun voting with their feet.  Successful business people, musicians, comedians and athletes have given up life in the City of Lights in favor of the fiscal stability of neighboring countries such as Switzerland.  Even Britain has got into the game, with Prime Minister David Cameron offering to roll out a red carpet for those departing French looking for a new home, and London’s idiosyncratic mayor, Boris Johnson, announcing that he was keen to welcome any talented French people who wanted to settle in his city.
Only in office for five months, Hollande is facing challenges on all sides.  After campaigning on the platform of returning a “normal” presidency to France after the manic years of his predecessor, Nicolas Sarkozy, Hollande quickly began experimenting with far-left policies soon after his arrival in the Elysee Palace.  In 1981, Francois Mitterrand, the last Socialist president, launched a campaign against the wealthy that drove many of them from the country.  Hollande appears keen to push France down the same path now, although protests from entrepreneurs and unfavorable media coverage are slowing his progress.
The competitiveness of the French economy is a key issue facing the country.  Despite the voters’ recent rejection of Sarkozy at the ballot box , many of the ideals of the frenetic former president are still driving the debate today.
Unfortunately, Hollande now also faces a series of uncomfortable revelations about his personal life.  It seems a distant memory now, but not so long ago the French press were once so accommodating and respectful that Mitterrand was able to maintain a mistress and a second family for years without the fear of exposure.
Today, in addition to the European financial crisis and the structural unemployment problems that France faces, Hollande also must contend with the ongoing saga of his current girlfriend, Valerie Trierweiler, and her open feud with his former partner Segolene Royal.  Royal, in addition to being the mother Hollande’s four children, was also the unsuccessful Socialist candidate for president 5 years ago who lost against Sarkozy.
France is a small world!
As a result, a comic melodrama involving Hollande’s complicated personal life is playing out in parallel to his attempts to govern a country whose economy is in dire need of a reboot.  As French magazines and satirical sketch programs shower him and Trierweiler with their relentless attentions, Hollande must also navigate the treacherous waters that France, and Europe as whole, now finds itself in.
These economic difficulties are not distant and abstract, but rather are pressing questions that demand concrete answers.  A gruesome side of modern French life has developed in recent years, as a byproduct of the economic stagnation that has turned suburban neighborhoods into no-go areas where violence and rape are a far-too-common occurrence.  Stories regularly appear in the press of atrocities taking place in and around the tower blocks that house the poor and unemployed outside the bright lights of the leading French cities.
The fundamental problem facing France today is a lack of jobs.  As a result, a generation of young people are finding it impossible to get themselves on to a meaningful career ladder.  The children of immigrants whose parents had moved to France in search of a better life are unable to get a job when the economy is not rapidly expanding.
Socialist rhetoric supports the punitive taxation of high-earners, and Hollande made clear during the campaign his desire to further squeeze the country’s high earners.  However, the realities of governing must inevitably trump the idealism of campaigning.
As more successful French men and women leave their country and trade in animosity and envy for the warm welcome of other countries, Hollande and his cabinet must reconcile their country’s need for economic growth with the short-term populist sentimentality for “soak the rich” policies that deliver very little additional tax revenues.
Notably, within the left-wing of French government and society, questions are now being raised about how effective Hollande’s attack on high-earners will actually be.  If even France, with its historic distrust of wealth and ambivalence towards successful business people, begins to question these short-sighted policies, then observers around the world should take notice.
When the solution to your problems is growth and job creation, penalizing the very group of people who drive the economy forward will ultimately only serve to drive your country backwards.
The writer is a commentator who divides his time between the United Kingdom and Southern California. He has appeared on CNN, CNBC, BBC and Sky News, and has been featured in The New York Times, The Wall Street Journal, The Washington Post, The Financial Times and The Economist.