Monday, August 6, 2007

PARIS — French President Nicolas Sarkozy is rolling out the welcome mat for thousands of rich French people who fled one of Europe’s most onerous tax regimes, but few may heed his call.

In his first economic act since taking office, Mr. Sarkozy is pushing a tax law to lure back exiles such as rock star Johnny Hallyday, 64, and members of the Mulliez clan, who control the French retailer Groupe Auchan SA. The measure will increase exemptions on the “fortune” tax — the bete noire of rich expatriates — and cap the total individual tax rate at 50 percent of income.

Mr. Sarkozy, 52, needs these wealth-creators to help rekindle an economy that’s lagging behind its neighbors and to sustain future growth.

One challenge may be changing a centuries-old French attitude that regards people who make money with suspicion. That view has made penalizing the rich popular in France and leaves the wealthy uneasy about whether any pro-rich policies can last.

“In France, to earn a lot of money is to be seen as a little bit criminal,” says author Anne-Marie Mitterrand, who moved to Belgium in 1997. “In Belgium, the mentality is completely different. People who have a little money are not regarded as thieves.”

French suspicion of wealth runs deep. Finance Minister Christine Lagarde, 51, traces it to French aristocrats who turned up their noses at people who earned their fortunes.

Even the French Revolution of 1789 didn’t change that: “The Right to Laziness,” a 19th-century book by Paul Lafargue, Karl Marx’s son-in-law, advised against working more than three hours a day. And French author Honore de Balzac said, “Behind every great fortune lies a crime.”

This prejudice drove French citizens to Switzerland, Belgium, Britain and the United States, where at least 500,000 of them reside, either to make more or keep more of what they have.

London and the U.S. are preferred refuges for younger people. Switzerland, with about 200,000 French residents, attracts the retired and stars like Mr. Hallyday.

Angry at paying more than 72 percent of his income in taxes, he moved to the ski resort of Gstaad in December, generating considerable publicity in the process. After Mr. Sarkozy’s May election, Mr. Hallyday hinted he might come back.

Households fleeing the fortune tax climbed to a record 649 in 2005 from 370 in 1997, according to a study by French Sen. Philippe Marini.

A study by the Economic Analysis Council, which advises the government, says about 10,000 business directors fled in the past 15 years, taking as much as $137 billion in capital to invest elsewhere.

These “are not people living off their interest but entrepreneurs and investors who are needed by France’s small and medium businesses,” Mr. Marini said in his February report. Losing them means “a loss of economic dynamism” for France, he wrote.

The French economy is set to expand 2.2 percent this year, compared with 2.7 percent for other euro-based economies, according to the Organization for Economic Cooperation and Development.

But Francois Micheloud, a Lausanne lawyer who helps clients settle in Switzerland, says he doubts French exiles will return any time soon because they distrust government tax policies.

“The French know their country better than I do, and they have the impression that any changes made now are not necessarily there forever,” he said.

The fortune tax was introduced in 1981 as a populist move by Socialist President Francois Mitterrand. Mr. Mitterrand’s center-right Prime Minister Jacques Chirac eliminated it in 1986, a move he later said cost him the 1988 presidential election because many French people saw it as helping the rich.

The Socialists, who defeated Mr. Chirac in 1988, reinstated the tax. When Mr. Chirac won the presidency in 1995, he toughened it. Last year, it added $5.1 billion to French coffers, roughly 1.3 percent of total levies.

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