French President François Hollande was dealt an embarassing blow on Saturday when the country’s highest legal body scrapped his controversial 75 percent upper income tax rate.
The Constitutional Council announced it was overturning the 75 percent bracket on income over 1 million euros ($1.32million) because it was “excessive” and represented a “breach of equality of taxes.”
The French government responded to the decisions by insisting it would push on with plans to impose the reform and would be submitting a revised proposal for the 75 percent upper rate in its 2013 budget.
“The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council. It will be presented in the framework of the next Finance Act,” Prime Minister Jean-Marc Ayrault said in a statement.
The council’s decision to ditch Hollande’s flagship tax reform came after members of the opposition UMP party had asked it to review whether the levy was legal under the constitution.
The Council members, known as “the sages” decided that the way the upper tax rate was set to be imposed was unfair in the way it would affect different households.
The Council is concerned the tax would hit a married couple where one partner earned above a million euros but it would not affect a couple where each earned just under a million euros.
The tax rate, which was passed by France’s National Assembly in October, had infuriated high earners including acclaimed actor Gerard Depardieu, was due to be introduced in 2013.
Depardieu caused uproar earlier this month when he revealed he was moving to Belgium to seek tax exile status, blaming the government’s tax policies. The council’s decision may now make the actor think twice about selling his Paris mansion and upping sticks.
To opponents of the seven-month-old Socialist government, Depardieu’s move confirmed their fears that the 75 percent tax rate would spark a mass exodus of France’s most wealthy.
The measure, which Hollande insisted would only be a temporary move to help reduce public deficit, would only have to be paid by an estimated 1,500 people.
The tax reform was viewed as a symbolic move with Hollande keen for the rich to help the country during hard times. It is estimated the levy would have provided the government with an extra 210 million euros per year.
France is struggling to plug a 37 billion euro hole in its public finances to meet its target of reducing the budget deficit to the EU ceiling of three percent in 2013.