A tale of tax theatrics

In: Uncategorized

14 Jan 2013

This is my Perspective column from this week’s Fund Strategy magazine.

Bradley Wiggins and Jessica Ennis are to revoke their British citizenship in favour of Russian passports to be awarded directly by President Vladimir Putin. Fund Strategy can exclusively reveal that the Olympic stars will announce their move, a protest against the government’s economic policies, in next week’s Sunday Times.

David Cameron’s public relations advisers have arranged for the prime minister to appear on the BBC Newsnight programme to condemn the two athletes. It is understood that he will slate their behaviour as “pathetic” as well as “quite shabby” and “not patriotic”.

OK, that was all made up. However, it is broadly comparable to what has happened recently in France with Gérard Depardieu. The French actor and national icon was indeed presented with a Russian passport by President Putin earlier this month.

Last month Depardieu wrote in a Sunday newspaper that he intended to renounce his French citizenship in protest at the planned introduction of a 75% “supertax”. He was subsequently condemned by Jean-Marc Ayrault, the prime minister, in a television interview in the terms described above.

François Hollande, the French president, also indirectly referred to the affair in his new year’s eve address to the nation. Although he did not give any specific figures he declared that “those who have the most will be those that will be asked for the most”.

Nor is Depardieu the only high profile figure to leave France, or announce plans to leave, recently. Several high profile financiers have also reportedly left the country in response to high tax rates and alleged anti-business attitudes. Christian Clavier,Depardieu’s co-star in the Astérix movies, also emigrated to London although he denied it was for tax reasons.

No doubt some would find it tempting to explain the resentment of wealthy French citizens against the socialist government with a simple script. Conservatives might see it as a reaction to an ideologically motivated French government penalising the successful. Hollande supporters, in contrast, might claim that the government is rightly ensuring the rich pay their fair share during difficult times.

But neither view captures what is going on. For a start the Hollande government is best understood as technocratic rather than radical. As I have previously argued on these pages, and others have said too, it was always clear that the differences with his conservative predecessor were minimal.

Nicolas Sarkozy promised to balance the budget by 2016 while Hollande said he would do so a year later (European clash is no battle of ideas, Fund Strategy, 21 May 2012).

It is also clear that the supertax on those with incomes of over €1m (£800,000) was meant mainly as a symbolic gesture rather than as a way of raising revenue.

It was only intended to be in place for two years and in any case the country’s highest court has temporarily declared it unconstitutional on a technicality.

No doubt if and when it is introduced the wealthy and their advisers will find ways to minimise their tax liabilities. That experience is universal rather than specific to France.

It is also wrong to see the supertax as left wing in a traditional sense. It should not be forgotten that back in August some of France’s wealthiest individuals wrote an open letter to Nouvel Observateur, a weekly news magazine, in which they called for the rich to accept higher taxes in difficult economic times. The signatories included the L’Oréal heiress, the head of the Total oil giant and the head of the Publicis marketing group.

Their move followed shortly after Warren Buffett, the world’s third richest man, made a similar call in the New York Times. His article started by suggesting that his “mega-rich friends” should be prepared to accept political demands to accept “shared sacrifice”.

Buffett did not mention Barack Obama by name but it was clear that he was responding to the president’s call. The two have referred to each other in this context several times since.

In September 2011 the American president even announced a “Buffett rule” in which individuals making more that $1m (£813,000) a year would pay a tax rate of at least 30%.

However, it was later emphasised that the rule was a guideline rather than having any legislative force.

The discussion of supertaxes, whether in America or France, is been seen as symbolic rather than practical. It is essentially a way of “selling” austerity to the general public: making cuts in living standards acceptable by suggesting that everyone will have to make sacrifices.

In that sense it can be seen as a cynical ruse by the likes of Obama and Hollande. They have no intention of expropriating the rich but they recognise that populist-sounding campaigns can help win support for a climate of shared sacrifice.

Opponents of such talk, whether American Republicans or French conservatives, are nervous that the pro-tax talk could gain a momentum of its own. They probably also see some political advantages in opposing the populist case.

Ultimately all the talk of a supertax should be seen as an elaborate act. Even if it is implemented at some point its practical effect is likely to be minimal. It is ironic that Gérard Depardieu, one of France’s greatest actors, cannot see through the theatrics.