It’s a shame that France’s two most powerful people, its president and its richest man, were unable to get beyond populist posturing and recrimination as they battled over taxes this week. They may have missed a golden opportunity to find common ground on restoring growth to their country’s beleaguered economy.
The clash erupted after Bernard Arnault, the chief executive officer of LVMH Moet Hennessy Louis Vuitton SA, acknowledged that he has applied for Belgian citizenship. He said this was a “personal action” and promised to continue paying French taxes as before. Even so, the move was seen as a ploy to avoid ― or at least express disapproval of ― a 75 percent levy on high earners that France’s Socialist government has included in its 2013 budget.
Whatever his intentions, Arnault hit a nerve. The front page of Liberation, a national newspaper, splashed a photo-montage of the billionaire, suitcase in hand, under the headline “Get Lost, Rich Jerk.” President Francois Hollande implied that the magnate lacked patriotism, saying in a television interview that Arnault “should have reflected on what it means to ask for another nationality because we are proud to be French.”
Opposition politicians on the right, meanwhile, have seized on the Arnault case as evidence that the redistributive policies and punitive taxes imposed by their Socialist successors were driving job creators out of the country, and discouraging foreign investors from coming in.
A much better debate can be had. France’s economy is stalled, and unemployment is at a 13-year high. Yet Hollande’s plan for 30 billion euros ($39 billion) in spending cuts and tax increases is highly unlikely to achieve his goal of narrowing the budget deficit to 3 percent by the end of 2013 from 4.5 percent this year. Just one-third of the deficit reduction will be achieved through cutting spending on France’s unsustainably large public sector and entitlements; the rest would be obtained by raising taxes in what is already one of the world’s most heavily taxed countries.
Worse, Hollande has recognized that the 75 percent rate on earnings of more than 1 million euros is largely symbolic: It will affect only 2,000 to 3,000 people and won’t raise much revenue. That lends credence to accusations by Arnault and others that the levy is designed to pump up the president’s falling approval ratings by stoking class resentment.
The president needs to rethink his approach. He may have something to learn about growth and job creation from Arnault, who over the past 25 years has built his luxury-goods company into one of France’s largest and most profitable enterprises. It now accounts for more than 5 percent of the Paris stock market and employs close to 100,000 people in France and around the world. It shouldn’t be held against him that along the way he has acquired a net worth of $25.7 billion, according to Bloomberg’s Billionaires Index, making him the 15th-richest person on the planet.
That’s not to say that Arnault has taken the high road to Belgium. As we said in May after it was reported that Eduardo Saverin, a billionaire co-founder of Facebook Inc., had decided to renounce his U.S. citizenship to become a resident of lightly taxed Singapore, those who choose to become tax exiles betray the countries that enabled their success. In particular, LVMH owes its success to its close association with French taste and savoir-faire.
As politically useful as this titillating spat may be for Hollande, what France really needs is an honest debate about its economic choices ― a discussion that would ultimately benefit both Hollande and Arnault by clarifying the respective roles and responsibilities of government and private enterprise in France’s recovery. We would be happy to organize a Champagne summit to break the ice.
(Bloomberg)
