France’s top earners squeezed in government’s ‘leftist’ budget

But critics said its plans lacked fundamental reforms that could jumpstart economic growth.

President Francois Hollande’s cabinet defended the spending plans for next year, saying it would win the “battle” against joblessness.

Like many European countries, France must tread a fine line between cutting the debts that dragged them into the financial crisis and investing in the economy to spur growth.

The French economy, the second largest among the 17 countries that use the euro, has not grown for three straight quarters, the national statistics agency confirmed yesterday. Unemployment has been on the rise for more than a year and stands at 10.2 per cent.

Economists warn, however, that things could get much worse if it does not get serious about slashing state spending and reforming stringent labour laws.

“This is a serious budget, it’s a leftist budget and it’s fighting budget,” Finance Minister Pierre Moscovici told French radio.

Because Mr Hollande promised he would slash the country’s deficit to three per cent next year – a limit required by European rules – the government must find 30bn euros (£24bn) in savings. One-third will come in spending cuts, with the rest in new or higher taxes on the wealthy and big companies, including a 75 per cent tax on incomes over 1m euros (£800,000).

Among the other measures included are: a new income tax level at 45 per cent for those making more than 150,000 euros (£120,000), an increase of capital gains taxes to bring them more in line with how salaries are taxed, and a cap on certain deductions for large companies on their income taxes.

The 75 per cent tax will last for two years and has always been billed as a symbolic measure since it will bring in very little revenue.

Several businessmen and politicians in the opposition have said that’s exactly what’s wrong with the 2013 budget: It sends the message that France doesn’t like the rich and isn’t open for business.

“France is sick from a model that isn’t viable,” said Guillaume Carou, CEO of Didaxis and president of the Club of Entrepreneurs, which represents 15,000 small businesses.

Prime Minister Jean-Marc Ayrault, however, insisted: “It’s a budget that aims to inspire confidence.”