French lawmakers reject wealth tax on ultra-rich

By Leigh Thomas and Dominique Vidalon

PARIS (Reuters) -French lawmakers shot down proposals to levy a wealth tax on the ultra-rich demanded by the Left and on Friday backed instead a diluted government plan to tax assets kept in holding companies.

Eager to calm Socialist lawmakers furious over the rejection of the wealth tax, Prime Minister Sebastien Lecornu said the government would not oppose lifting a freeze on pensions and welfare benefits in his 2026 budget.

The vote underscored deep divisions in France's raucous parliament over how to tax the wealthiest citizens, as lawmakers debate Lecornu’s belt-tightening budget.

Centrist, conservative and far-right lawmakers formed a majority against multiple proposals from left-wing parties, including a 2% tax on wealth of more than 100 million euros ($117 million) - a measure promoted by French economist Gabriel Zucman, who says it could generate 15-20 billion euros annually.

POTENTIAL VOTES OF NO CONFIDENCE

Lecornu, who lacks a parliamentary majority, is reliant on Socialist support to pass the budget and survive potential votes of no confidence.

"What we want is that the French don't have to pay the tax that billionaires don't want to pay," Socialist Party leader Olivier Faure said.

Lecornu responded by saying that the Constitutional Court would strike down the Zucman tax and said the government was open to scrapping its plans to freeze pensions and welfare benefits, which otherwise would not have been adjusted next year for inflation.

Zucman argues that his tax, hugely popular in polls, would ensure the ultra-rich pay at least as much, proportionally, as average earners.

LECORNU WARY OF TAX IMPACT

Wary that such a broad tax could hurt French firms, deter investment and destroy jobs, Lecornu has proposed instead a 2% levy on assets in holding companies not used for business purposes.

Lawmakers backed a watered-down version of the tax, which was originally expected to raise up to 1 billion euros by targeting personal assets held in some 4,000 holding companies that serve no economic purpose other than to reduce their owners' tax bill.

"Our aim is not to achieve tax justice at the expense of the economy," Budget Minister Amelie de Montchalin told lawmakers during the debate, warning the Zucman tax could trigger an exodus of France's wealthiest taxpayers.

The final shape of the tax could still change when the budget bill reaches the Senate in the coming weeks, though the lower house will have the final say.

The legislation will also face scrutiny from the Constitutional Court, which has previously struck down tax laws it deemed confiscatory.

($1 = 0.8575 euros)

(Reporting by Leigh Thomas and Dominque Vidalon; Writing by Leigh Thomas; Editing by Andrew Heavens and David Holmes)