Jospin targets rich for emergency tax

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The Independent Online
The most profitable French companies, and the wealthiest French individuals, face an emergency tax levy later this year to help France qualify for the European single currency.

Dominique Strauss-Kahn, the finance minister, said yesterday that a "light" levy on business and individuals may be necessary if the state of public finances proves to be worse than expected. An audit is due to be completed in two weeks' time.

His comments provoked anger in the business community and among centre- right politicians, who pointed out that the Socialists had campaigned during the election in May on a promise not to raise taxes. They had also campaigned on a promise to keep their promises.

Government spokesmen retorted that this was not true: the Socialists had pledged not to raise the standard, compulsory level of taxation. Mr Strauss-Kahn was suggesting a one-off levy. This would only apply if the budget deficit this year seemed to be hopelessly wide of the guideline - 3 per cent of GDP - laid down for membership of the single currency.

The French government has already let it be known that it expects to miss this target but hopes that Germany and other EU governments will accept 3.4 or 3.5 per cent as a near miss.

The emergency levy would apply if the estimated deficit was even higher (which seems likely).

To add to the confusion, the government itself seemed unclear who might be stung by such a tax. Francois Hollande, the first secretary of the Socialist Party, said on Wednesday that it would apply only to companies which had been "the most prosperous" in recent years. Catherine Trautmann, the official government spokeswoman, suggested it might apply to any company which had "made profits". Mr Strauss-Kahn extended the net yesterday to the "wealthiest families".

The row was a further embarrasment for the Prime Minister, Lionel Jospin, who gave a television interview to explain how he intended to keep an apparently contradictory set of election pledges.

Mr Jospin asked, in effect, not to be judged on his first month, or his first year, in office. He said he had been given a five-year mandate and would keep his promises by the end of that period.

Mr Jospin remains popular and most French people seem ready to extend his period of grace. His core problem is his promise to respect all his promises, which has tangled the government in ever more complex skeins of sophistry.

The decision last week not to reverse the closure of the Renault factory in Belgium seemed a direct breach of a promise to reopen the case. No, said Mr Jospin, he had promised only to "reopen the dossier", not to force a different decision.

The vague commitment to greater EU emphasis on growth and jobs at the summit in Amsterdam fell short of the campaign pledge to push the whole European single currency policy in a new, more reflationary direction. Yes, said Mr Jospin, but it is just a first step.

The tax row brings him into even more hazardous territory. To meet the EMU guidelines and honour spending pledges, Mr Jospin needs the economy to grow faster than the current annual estimate of 2 per cent. But any suggestion that his government will be anti-business and anti-profit could undermine investment and business confidence and, therefore, growth.