Sunday, May 13, 2012

An Exodus From France

France has elected a new socialist president, Francois Hollande.

Being a very wealthy man himself, Hollande hates the rich. He especially hates rich financiers. He rode to victory by promising to tax the rich.

He sounds like the Occupy Wall Street candidate.

For those of us who decipher codes, hatred of rich bankers feels like a sanitized version of a much more ancient and visceral hatred.

Consider that 93% of France’s Muslims voted for Hollande. I guess that they hate the rich too.

Writing for The New Yorker Anthony Lane explained the undertone of anti-Semitism in the brutal attacks on Sarkozy:

Has there been, in the astonishing chorale of vituperation directed at Sarkozy—at his unabashed pro-Americanism, his enjoyment of the Presidential trappings, his perceived otherness, or un-Frenchness—a reedy note of anti-Semitism? (One of his grandparents was Jewish.) Hard to pin down; what can be said, at least, is that some of the vocabulary in which it was couched would have sat all too easily in the mouths of anti-Dreyfusards, in 1899.
This is producing a new exodus. Wealthy financial types are casting their own vote. They are leaving France. Their preferred destination is London.

The London Telegraph compares it to the annual August vacation when Parisians abandon their city to foreign tourists. A London-based money manager compared it to the mass outward migrations during the French Revolution and after the last socialist president, Francois Mitterand was elected.

But, perhaps we should compare it to the World War II exodus of French Jews.

Policy-wise Hollande has promised to tax the rich. It’s good politics to say that you can avoid austerity by increasing taxes. It’s failing in Greece. It’s failing in California.

Left-thinking people see the results and conclude that the world needs more of it.

No one seems to care that it doesn’t work. No one seems to care that higher tax rates mostly often produce lower tax revenues.

In a global economy the rich are mobile. Last week, the co-founder of Facebook Eduardo Saverin renounced his American citizenship, the better to avoid $600,000,000 in taxes.

When it comes to taxing the rich Hollande has outdone the competition. The Telegraph reports:

Mr Hollande plans to implement a 75pc tax rate on earnings over €1m (£800,000), on top of a 45pc rate for people making €150,000 or more. He is also expected to raise "wealth taxes" on property assets and end his predecessor's tax incentives to lure bankers back home.

If you are not familiar with French tax law, wealth taxes are a levy on the value of your property. If you own a house and the house is worth more than a certain amount, you will be taxed on  its value, realized or unrealized.

The exodus has already started:

Private equity firms and American banks in Paris have already begun making arrangements for their top executives to set up office in London, amid widespread concern about changes to the French income tax regime.

High-earners are changing their behaviour so they appear safely based in London before any painful crackdown. "Partners are coming over to establish a track record of behaviour that is outside tax, from an early stage, so that they can respond quickly to what is coming down the track," said a senior source at one private equity firm.

"The exodus will mean a lot of France's biggest earners relocate to London," said a hedge fund manager. "It won't be possible for everyone, but those who can make the switch will definitely be working on a contingency plan."

And then, the socialist Hollande is also likely to do the bidding of the labor unions by making it more expensive to hire people.

Sarkozy had been trying to deregulate the labor market. Hollande will re-regulate it. Everyone knows that more government regulation of the labor market will translate into more unemployment. No one cares.

Quoting a French money manager, the Telegraph reports:

"You have to have a very specific reason to have a business in France instead of the UK, for example access to skilled workers or the need to be very close to clients," he said. "Sarkozy had implemented reduction in social changes to increase competitiveness in France. Such changes will disappear and labour costs, which are huge, are likely to rise.

"If you pay an employee say £100,000 in London the equivalent in France is already over £170,000, simply due to costs. Administration and the regulatory framework is also very complicated."

It's always possible that Hollande might see the light and scrap his plans for punitive taxation. If you were a French financier would you pray for Hollande to find the path of right reason or would you start packing?

1 comment:

Jewel said...

In addition to siphoning the rich, the banners all around France read:
Before, Africa was yours. Now, France is ours.
The French have lost their culture and their country. I have seen a number of French people, all upper class sorts, making their way to Lancaster County, where there is a food production based economy, in addition to tourism and building. Our economy is doing well here, if you have a marketable skill.