Macron, Once Seen on Left, Now Fights Charge of Favoring Rich

(Bloomberg) -- President Emmanuel Macron was accused during France's 2017 election of being a Trojan Horse for the outgoing Socialist government. Five months into his presidency he's fighting criticism that he's governing for the rich.

The 39-year-old president's plans to overhaul the tax code have been criticized by unions, the opposition and even some members of his own political family as too generous to the well-off, particularly his plan to greatly narrow the scope of France's wealth tax. That initiative comes on top of housing subsidy cuts and reduced levies on capital gains and corporate profits.

For the government, the policies are intended to spur investment, generating growth and jobs that will benefit the entire population. Yet the changes also trigger deep-seated outrage among French voters about inequality that has given France one of the world's most generous social systems, as well as the highest rate of taxation in Europe.

“The government has opened a debate that has quickly become hysterical,” said Eric Pichet, a professor at the Kedge Business School. “We're back to the the traditional split between economic efficiency” and the need to maintain “social cohesion,” he said.

Le Figaro, L'Opinion and Le Canard Enchaine all made the wealth-tax issue their above-the-fold front-page headlines Tuesday. L'Obs's most recent edition had a front-page photo of Macron, a former banker, in a pinstriped suit covered with the words “Why he's giving to THE RICH.”

Francois Bayrou, a centrist politician who backed Macron in the election, said that the tax plan is “unbalanced.” Laurent Berger, head of the country's largest union, which had cooperated with the government over the summer on liberalizing the labor law, said it is “unfair.” Philippe Martinez, head of the CGT union, said “we once had a president for the rich, now we have a president for millionaires.”

Investment Not Punishment

The tax -- called ISF -- applies to assets over 1.3 million euros ($1.5 million) with rates going from 0.5 percent to 1.5 percent. Macron intends to limit it to just real estate, meaning people with stakes in companies or other forms of wealth would be exempted. That would reduce the number of households subject to the tax to 150,000 from 330,000, according to the finance ministry.

Macron's changes would reduce the government's tax intake by about 2.4 billion euros next year, Kedge's Pichet estimates. By comparison, the French state takes in about 300 billion euros annually.

The current government estimates that the tax has driven 10,000 people abroad since 2002. Germany and Sweden have abolished versions of the tax they had in the past. Britain, the U.S. and Italy have never had a similar levy.

“The reform of the ISF follows a philosophy of favoring investment,” Macron said Friday. “Its not a static question of deciding if people are rich or poor, it's not about punishing people for success during their life. We want to align France with other European countries in funding innovation.”

French economic growth has lagged that of the euro zone for three years now. It's unemployment rate is roughly double that of Germany and the U.K.

Government ministers have also pointed to plans to cut housing and payroll taxes, and increases to disability payments as examples of policies that benefit poorer citizens. Macron Oct. 3 visited Whirlpool and Amazon plants in northern France to meet workers. On Wednesday he's visiting a civil engineering school in central France. On Oct. 6 he's speaking at a conference of construction companies.

French and Money

The wealth tax was introduced by Socialist President Francois Mitterrand in 1981 and abolished in 1986 by Prime Minister Jacques Chirac, who blamed his 1988 election loss to the Socialists on that decision. The Socialists reinstalled the tax and it's remained ever since.

“If Macron is going to do this reform, he has to do it now, right at the start of his mandate,” said Bruno Jeanbart, a pollster at OpinionWay in Paris. “If in five years he can show it produced economic benefits, he can argue it was the right thing to do. If not, it will cost him.”

According to a poll carried out in late September by OpinionWay, 57 percent of the French are opposed to changing the wealth tax. An Odoxa poll the same week said 65 percent of the French think the government's proposed budget is “unfair.”

“The French have always had a complicated relationship with money and capitalism,”' said Jeanbart. “The ISF fits with their idea that you need to take from the rich to give to the poor.”

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net.

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Mark Deen, Vidya Root