François Hollande was pressured into reneging on a highly unpopular tax bill on Thursday after fiscal changes outlined in the 2013 budget provoked uproar amongst France’s entrepreneurial sector.
The climb-down came after a viral barrage launched by a group of web entrepreneurs calling themselves ‘Les Pigeons’ (French slang for ‘chumps’). The movement has garnered a significant wave of support, with almost 63,000 members on Facebook alone and the hashtag #geonpi trending worldwide on Twitter.
At present, French entrepreneurs pay 19 per cent capital gains tax (plus 15.5 per cent in social security contributions). New measures announced in the September 28th budget pledged to bring capital tax in line with income tax, meaning that start-ups that take in over €150,000 annually (most of them) would be forced to pay a whopping 45 per cent in capital gains tax, practically double the current amount. When added to the mandatory 15.5 per cent in social contributions, the total tax rate clocks in at a staggering 60 per cent.
To put that into perspective, the average European capital gains tax lies somewhere between 18 and 25 per cent, with maximum rates set in the UK (28 per cent) and Germany (26.4 per cent).
“Les Pigeons” protest that such shifts in the country’s fiscal policy are unfairly skewed against the startup community. Commentators warn that such tax increases could decapitate France’s entrepreneurial base, choking innovation and rendering small businesses creation almost entirely untenable.
Crucially, Hollande’s decision to introduce such exorbitant tax hikes represents a fundamental backtrack on earlier campaign pledges to re-balance taxes in favour of startups, leaving many entrepreneurs asking themselves if they still have a future in France.
“The government thinks France’s entrepreneurs are pigeons”, the movement’s Facebook page declares. “Anti-economic policies are crushing the entrepreneurial spirit and exposing France to a big risk”.
The formidable lobbying force of the ‘Pigeons’ movement led to finance minister, Pierre Moscovici, setting up emergency talks with entrepreneurs last Thursday to negotiate changes to the tax bill.
“We don’t want to give the impression that we want to punish the Pigeons”, a Hollande representative told Reuters. “We’ll find a solution … the Pigeons should return to their nest”.
However, despite the climb-down, Hollande has set a dangerous precedent. By alienating France’s thriving entrepreneurial community, he runs the risk of squandering the sector’s promising economic potential. A study of 108 French SMEs revealed a drastic 33 per cent growth in revenue from €753m in 2010 to €1bn in 2011. These impressive growth rates ran parallel to a 24 per cent increase in employment figures, with most workers employed under a CDI contract – the strongest of its type in France.
The decision to saddle such a burgeoning sector with a salvo of taxes seems confusing at a time when many of country’s larger corporations find themselves struggling to remain competitive. Peugeot and Bouygues have already laid off thousands this summer and the mood in the French business community is souring. Hollande is alienating small business precisely when he needs them to drive growth.
Such economic oversight comes at a bad time for Hollande. With unemployment at a 13-year high and 2013 growth forecasted at shocking -0.2 per cent, Hollande’s perceived pursuit of an anti-capitalist, anti-economic agenda won’t do him any favours – especially if he is to fulfill his election promise to hoist the French economy back on its feet.
Concerns are rising in France that the government’s strident model of budgetary rigour is simply incompatible with nurturing a flourishing entrepreneurial sector.
For François, the Honeymoon has ended abruptly. And with his approval rating plummeting from 56 to 41 per cent since his inauguration, he needs all the friends he can get.