By: Dr. Mike Campbell
Rumours were circulating recently that the ratings agencies were toying with an idea of downgrading French credit worthiness from AAA to AA+ as happened to America recently. The rumours were flatly denied on all sides. However, like almost all of the major economies, France has its own debt crisis. The current account deficit stands at 5.7% which is almost twice the Eurozone convergence requirement of 3%.
France has vowed to get its deficit back to less than the permitted 3% by the end of 2013; this will involve making €12 billion in savings or higher revenues. It aims to reduce it to no more than 4.6% next year so that the target is hit the following year. As part of the measures which the government is taking to achieve this, it has announced that anybody earning more than €500000 per annum will have to pay an additional 3% on their income tax bill. The measure would be lifted once the deficit target has been reached.
Usually, wealthy people are outraged at having to pay more tax (they usually are charged a higher rate of tax than “normal” citizens in the first place and their absolute contributions are multiples of what the average person pays), but a group of wealthy and influential Frenchmen had been asking for just that. In an open letter, sixteen of France’s wealthiest and most influential citizens stated:
"We, the presidents and leaders of industry, businessmen and women, bankers and wealthy citizens would like the richest people to have to pay a 'special contribution'. When the public finances deficit and the prospects of a worsening state debt threaten the future of France and Europe and when the government is asking everybody for solidarity, it seems necessary for us to contribute." It seems that their wish has been granted.