It would encourage digitally savvy entrepreneurs. It would be a hub for artificial intelligence. And it would encourage a wave of new companies, replacing the ageing giants of French industry. When Emmanuel Macron became president, turning the country into ‘le start-up’ nation was central to his mission to modernise the economy. In fairness, he had some success. And yet with one of the world’s most punishing wealth taxes passed by the National Assembly last week it is about to be killed stone-dead.
It was always slightly implausible for a country best known for its long lunches, short working week, endless holidays, and generous early retirement ages, but Macron was determined to create a start-up culture in France. Co-working spaces were built, the government offered plenty of finance, and there were even tax breaks on offer. There were a handful of genuine success stories, such as the AI firm Mistral, valued at $6 billion, and the health platform DoctoLib, valued at $6.4 billion. Sure, taxes were high, and so was the deficit, but the start-ups would power a new round of growth.
The trouble is, they have just been crushed. Last week, the National Assembly voted in favour of a wealth tax that would be among the toughest in the world. Anyone with a net worth of more than €100 million – around 1,800 households in France – will face an annual tax of 2 per cent of their net assets, including unrealised capital gains. For the founder of a company, that is potentially lethal. If your start-up has just raised fresh capital, at a value of €500 million, and you own 50 per cent of the business, you will face an annual charge of €5 million, even though the business may not yet be making any money, and you might not even be paying yourself a salary. The wealth tax will be tough on the old, established family fortunes, but for the venture capital model of raising financing at successively higher valuations it will be fatal. It simply won’t work. They will have to go elsewhere.
Of course, even though the Assembly has voted in favour of the new tax, it may not pass through the Senate, and it may even be struck down by the courts. We will see. But even the milder version proposed by the government is hardly much better. The various taxes paid by each individual will have to equal at least 0.5 per cent of their total net worth, and if it doesn’t there will be a surcharge. In reality, France is now closed to entrepreneurs. Macron’s goal of a start-up nation has been shattered. The traditional giants of the French economy will stagger on – but it is hard to see how any new companies will ever emerge to replace them.
Comments