Massive tax rise for French high earners will fail to generate expected returns

90% tax on less than 1% of population is ‘questionable’ says Vanesha Kistoo

The tax proposals from the New Popular Front (NPF) will not pay for their ambitious public service and green investment plans, say leading audit, tax and business.

Vanesha Kistoo, a Partner in Global Mobility said:

I do not think the 90% tax on any annual income above €400,000 (£337,954) proposed by the New Popular Front (NPF) is going to result in their desired outcome. Less than 1% of the French population receive an annual income of €400,000. Those who do are close to retirement age and/or are expats.

Given that expats have a choice, they will leave France. I am already seeing enquiries about options and whether the UK could be a good short-term solution, to benefit from the new Foreign Income and Gain (FIG) regime which will come into force from 6th April 2025. This could be beneficial for the UK in terms of attracting overseas money into the UK economy and businesses, but with few details of the new scheme from Labour there is still uncertainty looming.

Those close to retirement age will resent this tax and may also look at moving abroad, and likely will not support the NPF politically going forwards. Also, if this tax plan goes ahead, in a best-case scenario, France is only looking at being able to generate additional revenue for a few years until an individual retires.

If the NPF expects this new tax to pay for their planned heavy investment in green transition and public services, they may find themselves short of their expected funds. Leaving them with the difficult choice of raising taxes elsewhere or abandoning their reforms, neither of which would be popular.

Given that it is questionable if this tax proposal would raise enough to pay for their ambitious changes, even in the best circumstances, it feels as if the NPF is making a political statement rather than a practical change to taxation.