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Economy

Macron plan to slash France's wealth tax clears key hurdle

media French President Emmanuel Macron ©REUTERS/Ints Kalnins

President Emmanuel Macron's proposal to cut France's wealth tax took a step nearer to becoming law on Thursday as a parliamentary committee approved the plan, despite opposition from the left. Earlier the committee agreed a flat tax on unearned incomes.

The most controversial proposal in the government's 2018 budget was agreed in committee on Thursday, thanks to the solid majority of Macron's Republic on the Move (LREM) and its allies.

The measure will limit wealth tax, which is levied on incomes of 1.3 million euros or more, to real estate, exempting revenue from investments and savings schemes.

It will reduce the government's income from the tax, which is currently paid by 351,000 households and brought in five billion euros in 2016, by nearly 3.2 billion euros.

Macron and his supporters argue that the move will increase investment by reducing tax on "productive wealth".

Ostentatious displays of wealth

Under fire from the left for giving a "present to France's greatest fortunes", LREM MPs amended Macron's original proposal by adding extra taxes on "ostentatious signs of wealth" - yachts of more than 30 metres in length, expensive sports cars and gold.

Centre-right MP Charles de Courson was not impressed.

He tabled facetious amendments to tax items such as golf clubs, private planes and racehorses, to demonstrate the "absurdity" of the changes.

Other right-wingers argued that the move does not go far enough, Republicans MP Nicolas Faurissier claiming that it is the middle class that pays wealth tax and his colleague Eric Woerth claiming it is "overtaxing".

Communists, Socialists and MPs from the hard-left France Unbowed accused the government of increasing inequality.

The changes will "further increase the wealth gap between the richest and the poorest", France Unbowed MP Eric Coquerel argued.

Polls say policy favours rich

Overnight the committee agreed a flat tax on income from investments and saving schemes of 30 percent - a "tax break for the well-off" according to the left, a mistaken attempt to change French savers' habits according to the right.

That move will cost anotehr 1.3 billion euros in 2018 and 1.9 billion in 2019, according to the finance ministry.

Although the fiscal overhaul was announced loud and clear during Macron's successful election campaign, it is not proving popular with voters, according to an opinion poll published Thursday.

Some 82 percent of respondents believed the government's tax plans will benefit the most privileged, it found, while 69 percent believed that it will make life tougher for the low-paid.

IMF report questions more tax breaks for rich

The International Monetary Fund's (IMF) half-yearly report, released on Wednesday, appeared to cast doubt on the government's strategy, as well as on US President Donald Trump's plan to cut tax on the rich.

Pointing to a significant rise in income inequality in wealthy countries in the past three decades, the IMF's fiscal monitor said that "empirical results do not support" the argument that high taxes on the rich discourage economic growth and called for them to be increased to redress income inequality.

"The average top income tax rate for OECD member countries fell from 62 percent in 1981 to 35 percent in 2015," the head of the IMF's fiscal affairs unit Vitor Gaspar wrote in a blog post coauthored with his deputy, Mercedes Garcia-Escribano. "In addition, tax systems are less progressive than indicated by the statutory rates, because wealthy individuals have more access to tax relief. Importantly, we find that some advanced economies can increase progressivity without hampering growth, as long as progressivity is not excessive."

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