It declared the measure, the backbone of the French leader's successful presidential election campaign earlier this year, to be unfair and therefore unconstitutional. Immediately after the surprise legal ruling on Saturday, the French government pledged to redraft and resubmit the proposal.
The so-called "supertax" rate of 75% on individual incomes over €1m a year had provoked anger and angst in recent weeks after French national hero Gérard Depardieu announced he was moving just over the border into Belgium, reportedly for tax reasons.
After the French prime minister, Jean-Marc Ayrault, described the actor's move into tax exile as "shabby", Depardieu wrote a furious open letter in which he accused the Socialist government of seeking to "punish… success, creation and talent".
Hollande had called on the country's wealthy to show some economic "patriotism" and said the 75% tax band would be a temporary two-year measure. The tax was expected to affect only 1,500 people and raise €500m in 2013 as part of a raft of measures aimed at helping reduce France's public deficit. The measure was broadly supported by the French left, but criticised by the right and business leaders as likely to provoke a flood of entrepreneurs and the wealthy moving abroad.
The politically independent constitutional council, made up of nine judges and three former presidents known as les sages (the wise), was asked to rule on the tax by the centre-right opposition UMP party. It did not declare the tax too high, but said its application was unconstitutional because it "failed to recognise equality before public burdens". Unlike regular income tax, which is levied on households, the 75% rate would have been applied to individuals. This meant an individual earning over €1m a year would have been subject to the tax, but a couple each earning €900,000 would not. The council ruled this was unconstitutional as it could lead to two households with identical incomes being taxed differently.
Ayrault's office said in a statement on Saturday that it would draw up a "new proposal … taking into account the principles raised by the constitutional council's decision" to be part of the next budget. No details were given on when or how this would be done. Finance minister Pierre Moscovici told BFM television: "Our deficit-cutting path will not be affected."
The council's decision comes as a triple whammy for Hollande in a week that saw unemployment leap to a 15-year high and the International Monetary Fund reduce France's growth forecasts to well below the 0.8% Hollande is seeking to reduce the deficit.
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image: © Jean-Marc Ayrault