French business frustration boils over!! Hollande stiffles growth and jobs with Tax policy.

French business frustration boils over

By Hugh Carnegy and Scheherazade Daneshkhu in Paris

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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.

Business investment growth

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.”

Permanent link to this article: http://www.peytonspaces.com/2012/06/20/french-business-frustration-boils-over-hollande-stiffles-growth-and-jobs-with-tax-policy/

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