French business frustration boils over
Business trip: François Hollande visits a steel plant during the election campaign in January
When David Cameron, Britain’s conservative prime minister, was relayed on French radio news programmes on Tuesday morning declaring that he would “roll out the red carpet” to French companies escaping François Hollande’s plans to hoist taxes, he hit a raw spot for many of the country’s business leaders.
It was a double whammy when they saw the headline in the leading financial newspaper Les Echos proclaiming that President Hollande’s new Socialist government was set to include an extra tax on company dividends.
Within hours, Laurence Parisot, head of Medef, the employers’ federation, was venting the frustration felt by many in the French business community.
The concern is not just about Mr Hollande’s heavy emphasis on using a battery of taxes on the wealthy and on enterprises to help close France’s budget deficit. It extends to a range of other proposals, such as plans to add new legislation to the country’s already extensive employment protection regime.
“We’ve had many meetings with the staff in ministries to explain what’s happening, but we are becoming deeply distressed. We fear a systematic strangling,” Ms Parisot said.
The worries are that action by the new government will compound an economic outlook already rendered seriously bleak by the eurozone crisis. Ms Parisot’s warning coincided with latest data from Insee, the state statistics institute, showing business confidence falling to its lowest level since late 2009.
“Everywhere we see the same information growing,” she said. “Collapsing margins, plunging order books, new extreme pressures on treasuries, uncertainties that put big projects on standby, employment plans frozen and investment projects at best suspended but often completely scrapped.”
Heads of big companies are reluctant to go on the record about Mr Hollande’s policies, citing the political sensitivity of the tax issues. But privately, many are furious.
“A catastrophe!” said one. “It will be much harder to attract good people and if you do find them, they won’t want to be based in France. We are not looking to move our headquarters but we will probably set up some affiliates abroad.”
The proposal to impose a tax on dividends has yet to be spelt out in detail by the government, but Les Echos reported that it would be levied at source on companies at a rate of 3 per cent.
The government’s intention – one shared by its centre-right predecessor – is to push companies to reinvest profits rather than distribute them to shareholders. Last year, CAC 40 companies paid out €45bn in dividends and share buybacks.
But the head of one of France’s biggest companies said he was particularly angry about the move on dividends, arguing that dividends issued from money that had already been taxed.
“A lot of wealthy people will leave and I am sure the government will end up collecting less than before,” he said.
Another big business leader singled out the plan to impose a 75 per cent marginal income tax rate on incomes above €1m. “I am happy to pay 50 per cent in income tax – but 75 per cent? When you add the wealth tax to that, you’re talking about rates of more than 80 per cent. What does that mean? It means the government thinks I’m of no value.”
Stéphane Treppoz, chairman of Sarenza.com, an internet shoe retailer with annual sales of €100m, told the Financial Times:
“Everyone knows they have to pay more tax because of the economic situation. This is fine as long as the government puts in place structural reform measures to reduce spending, which is the only way to balance the budget after 30 years of irresponsible management of the country by all political sides.
“I don’t see any sign of this so far and I hope that the government will make balanced announcements in that direction soon.”
It remains to be seen whether serious numbers of French businesses and individuals will heed Mr Cameron’s call – or head for Switzerland or Belgium, other popular refuges.
Marc Lhermitte, partner at Ernst & Young, said: “Our clients are asking a lot of questions but there’s no panic, just a sense of caution.”
One reason for that may be that many business leaders think that Mr Hollande, having won the presidential election and gained a majority in parliament, will find a reason not to enact the 75 per cent income tax proposal – or that it may be declared unconstitutional. The president has signalled at least that it will be temporary.
Ms Parisot said she hoped French entrepreneurs “would not walk down Cameron’s red carpet”, adding: “There is a French spirit of enterprise – it is not a monopoly of our British friends.”
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