Focus on France Ian Sparks reports from Paris

EURO-REPORT

FOCUS ON... France

Ian Sparks reports from Paris on the flight from higher taxes.

France’s luxury property market has been experiencing an unexpected boom since the socialists seized power in May’s election – as the country’s highest earners sell up and move overseas in fear of looming tax hikes.

The latest estate agency figures have shown wealthy families are fleeing France to ‘wealth-friendly’ nations like Britain and Switzerland, triggering a surge in sales of homes worth more than 1.5 million euros.

Many of France’s biggest companies are also fielding a raft of demands from their highest paid executives to be relocated overseas before President Francois Hollande imposes his threat to tax all earnings over one million euros a year at a massive 75 per cent. The previous top tax bracket of 41 per cent on earnings over €72,000 is also set to increase to 45 per cent.

British estate agent Sotherby’s said its French offices sold more than 100 properties over €1.5 million between April and June this year – a marked increase on the same period in 2011. Sotheby’s French boss Alexander Kraft said: “The result of the presidential election has had a real impact on our sales. Now a large number of wealthy French families are leaving the country as a direct result of the proposals of the new government.

“These properties are then bought up by foreign investors, including a lot of Arabs and Russians, looking for a stable real estate market like France to invest in, although clearly not planning to actually live in France and pay French taxes. It shows the high-end property market is holding up very well.”

Swiss tax consultant Gilles Martin also told his country’s 20 Minutes newspaper: “Since the socialists came to power in France, I have been deluged with inquiries from rich French people who would rather pay their tax in Switzerland.”

Paris business analyst Jean-Yves Grandjean added: “It is getting harder and harder for firms to attract the best staff. Even those who might earn in the high five figures are staying away. A trend has begun that is only going to become more pronounced during Mr Hollande’s presidency.”

Prime minister David Cameron angered the French last month when he said he would ‘roll out the red carpet’ to wealthy French citizens and firms who wanted to move out and pay their taxes in Britain.

MP Claude Bartolone, a staunch ally of President Hollande, said: “I hope that it was an after-dinner remark and that he didn’t have all his wits about him when he said these things.

“He can’t have had his wits about him because if he had, he would have paid more attention to all those Europeans who go to work in England but who come for medical treatment in France and who put their children in French schools because there are no more public services in England.”

France’s European Affairs Minister Bernard Cazeneuve also told Canal Plus television: “What I can answer to this statement from the British prime minister is that French bosses are patriots. There is a range of measures we will take in favour of business, measures that will support investment and encourage business to stay in France.”

More subsidies

A large slice of France’s planned tax revenue now looks set to be ploughed into the country’s ailing car industry, where sales and profits have plunged over recent months.

For the nation’s biggest car manufacturer PSA Peugeot Citroen – which recently announced almost 8000 job cuts over the next three years and a 2012 first half loss of €819 million – the package of new measures could not have come at a better time.

The government has now pledged €1.8 billion in subsidies, with much of it to be used to encourage people to buy ‘greener’ electric and hybrid cars. Measures include raising the subsidies on buying batterypowered vehicles from 5000 euros to a maximum of 7000 euros, and from 2000 euros to 4000 euros for hybrids.

The handouts are designed to help manufacturers offset the higher cost of more environmentally friendly cars and thus make them more competitive. Inversely, existing penalties for heavily polluting cars will be increased.

But Guillaume Cairou, the head of leading French management consultancy Didaxis, dismissed the measures as ‘modest’ considering the scale of the car industry’s problems.

He said: “The real problem with France’s auto industry is the high cost of employment. The government’s plan is piecemeal, does not focus on the long term and is not what the industry needs. PSA, and the industry as a whole, needs to change its strategy to become less reliant on government handouts and above all try to develop its standing in foreign markets and show that French leadership in the automotive sector is still possible.”

And the government’s own IFP Energies Nouvelles (renewable energies) institute said there were still major hurdles in the way of luring drivers towards greener vehicles.

The body wrote on its website: “It’s the age-old problem of the chicken and the egg. Without a sufficient number of recharging points, consumers will not be interested in buying electric cars. And without a critical mass of electric cars, there is no reason to install the recharging points.”

The French car industry has only a tiny one per cent share of the global market in hybrid vehicles, which has doubled worldwide from around 500,000 in 2008 to more than a million in 2011.

French prime minister Jean-Marc Ayrault said: “France has the potential to become a world leader in green cars. The plans we have announced are extremely ambitious and show we are committed to seeing the automotive industry not only recover but begin to thrive again on the world stage.” n