SINN FÉIN’S PROPOSALS to introduce a third income tax bracket and a wealth tax have been compared by some to Francois Hollande’s pre-election promises in France.
Fine Gael’s Dara Murphy for example said that Sinn Féin’s plans were “tried with disastrous consequences” by the French President. So, are the two plans comparable and were Hollande’s plans a disaster?
Firstly for clarity, the term ‘wealth tax’ relates to a tax on assets and should not be confused with Hollande’s controversial 75% income tax election pledge.
Wealth tax
Apart from a couple of years break, France has had a wealth tax of some form or another since the early 1980s. Paris currently imposes six different rates of wealth tax on total assets between €800,000 and €10 million.
For example, individuals with assets of €1.3 million have an annual charge of 0.5% while those above €10 million pay 1.5%.
Non-residents in France are also liable for wealth tax on assets physically situated in France and co-habiting couples must make also make a joint wealth tax submission. Assets held by children below 18 years of age must also included.
Sinn Féin’s 2014 Pre-Budget Submission says that their proposals are modeled on the French and Norweigan levies. They are roughly in line with the French rates, proposing a flat 1% tax on net wealth in excess of €1 million excluding “working farmland, business assets, 20 per cent of the family home and pension pots”.
Unlike Sinn Féin’s proposals, the French wealth tax rules do not have an exception for a portion of the family home. Principal and secondary residences as well as rental properties are included in the calculations, demonstrating how property valuation is the primary constituent in France and indeed elsewhere in Europe.
Financial investments including stocks and shares are included when calculating wealth, as are bank accounts, jewellery, furniture, cars, motorcycles, boats and aeroplanes.
All borrowings undertaken to finance the purchase of a taxable asset are excluded from the wealth tax calculations in France. For example, if Person A has a financial wealth of €800,000 and a home worth €1 million their taxable assets are €1.8 million.
However, if they borrowed €600,000 to purchase the home and at the beginning of a tax year they still have €300,000 left to pay on the loan, their taxable assets are €1.5 million.
€1,800,000 – €300,000 = €1,500,000
Similarly, Sinn Féin’s proposals are net of all liabilities including mortgages and other debts.
Higher income tax rate
But likely where the comparisons have come from are as a result of the much reported 75% higher income tax rate that was a key part of Francois Hollande’s 2012 election campaign.
This is the proposal that saw Gerard Depardieu take up residency in Russia and drew the ire of, among others, football clubs in France who argued it would make it impossible for them to compete with other European clubs.
But brash actors and pampered footballers weren’t the only ones to have problems with the plans, France constitutional council ruled in late 2012 that the tax was illegal.
The problem was that the income tax was levied on individuals rather than households which is how things are done in France. The Government was reluctant to alter the proposals to include households because it would have greatly widened the net and hit people who weren’t origianlly intended.
But Hollande didn’t give up and managed to push through a much altered verison of the plan which instead put the obligation on companies rather than individuals. Firms are now required to pay the 75 per cent rate on salaries they pay to employees that are over €1 million annually.
But, as with the original proposal, the measure was not really designed to raise a significant amount, rather as a symbolical measure to show that higher earners were also contributing to austerity.
For example, estimates say that the measure will raise less than €1 billion this year after it’s levied in about 1,500 cases.
But perhaps this isn’t the correct comparison to be making, Sinn Féin are suggesting a new third income tax rate of 48% on income earned in excess of €100,000.
This is arguably commonplace in France in the form of a 45% rate for households with income over €151,000.
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