IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
By Jean-Philippe Delsol
The fiscal frenzy which has seized the French socialists not only means that the economy grinds to a halt. It is attacking the very foundations of society by destroying entrepreneurship and responsibility. Taxes are raining on the people and the promised shelters often disappear before they have even been introduced. The 2013 finance bill has announced confiscatory tax rates on incomes, capital gains, and the payroll taxes will be increased as well. But the socialists are shooting themselves in the foot: such tax rates will destroy wealth and drive out entrepreneurs, capital, businesses and young people. Thus tax revenues will fall.
The message is quite simple: there are today four to five times as many requests for leaving France than before. As far as my business is concerned, we had 3 to 5 cases a year, and we are already facing more than 20 this year. We are witnessing an explosive rise in tax exile since April 2012. On a national scale, it was previously estimated at some 1,000 exiles per year; today, this number should be multiplied by 5. It’s like repealing once more the Edict of Nantes in the sense that these departures will impoverish France in terms of business and industry.
The profile of the people leaving has completely changed. We still deal with aging entrepreneurs who would like to sell their business and retire without being soaked too much by the government. But this number is no longer increasing, in particular since the Exit Tax was introduced on capital gains (19 per cent plus 15,5 per cent in payroll taxes).
However, we are seeing a lot of young entrepreneurs, not necessarily wealthy, but who would like to get rich and will not hand over their wealth to the government. The hopeful tax exiles are therefore getting younger: today they are aged between 35 and 50, and not as before between 55 and 70. The granddad fiscal exodus is over!
More disquieting still, they come from all sectors. Mainly from the computer industry and the Internet, as these activities are immaterial and easier to move. But there is a bit of everything. They come from all walks of life: consulting, industry, services. The most recent example was a client who provided services to senior citizens, sold his French business and checked out to move it elsewhere. Their motives have also changed. These young entrepreneurs are leaving today to develop their business abroad, as French taxation has become unbearable.
They are not only leaving to enjoy their retirement in the sun. That is why this phenomenon is disastrous and dramatic for our country. They are leaving to create wealth elsewhere rather than in France. Their prime mover is the desire to create without being plundered. Beyond tax reasons, the French climate is deleterious for entrepreneurs, which provides an extra spur to scurry. Some are fed up with being looted by the government, but most of all they are tired of feeling hated and despised by public opinion and the state.
They do not necessarily choose safe havens such as Switzerland, but rather destinations like Luxembourg, Belgium, the UK or even Brazil and Mauritius. These are of course tax havens: for instance, payroll taxes in Switzerland, Luxembourg or the UK are 20 per cent, as compared to 85 per cent in France!
Continuing at this pace, France will soon run out of entrepreneurs and wealthy people, and the socialists will only have their taxes to eat.