The Return of the Native
21st Oct 2023
As a result of wealth tax reforms introduced by President Macron, the wealthy are returning to France.
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The Return of the Native
21st Oct 2023
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As a result of wealth tax reforms introduced by President Macron, the wealthy are returning to France.
A wealth tax has been in place in France since the end of WW11, often attacked as been economically inefficient, despite its egalitarian ambitions.
In 2018, the scope of the tax was substantially reduced, so that only personal real estate assets were taxable. Financial assets (other than those in real estate products) were exempt from the tax, and dividends and capital gains from investments became subject to a 30% flat rate tax.
As a result the Impôt sur la fortune (ISF) was renamed the Impôt sur la fortune immobilière (IFI).
Only those with real estate in excess of €1.3m are liable for the tax and the amounts payable are generally small in comparison to wealth. Around 160,000 households pay the tax.
A recent parliamentary report was skeptical that there had been any significant benefit to the economy, stating that: "The observation of major economic variables – growth, investment, household financial investment flows, etc. – before and after reforms is not sufficient to reach a conclusion on the real effect of these reforms. In particular, it is not possible to estimate by this means alone whether the abolition of the wealth tax has allowed a redirection of the savings of the taxpayers concerned towards the financing of companies."
That is a view shared by a government think tank, who in a recent report estimated the loss to the public purse of over €4b a year.
Nevertheless, it seems one of the positive impacts of the changes has been to reduce the number of wealthy households becoming tax exiles.
Although until 2018 the number of households leaving France exceeded wealthy households migrating to France, with the reforms this trend was reversed, as can be seen on the following graphic.
Between 2011 and 2016 the number of tax exiles was on average 950 a year, against 370 returns, a net migration of around 600 households a year.
Since 2018 the number of departures has averaged 260 a year, a figure lower than the number of returners, which averaged 380 between 2018 and 2021.
