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France proposes 50% tax on banker bonuses

The levy, similar to one put forward in Britain last week, is meant to discourage rewards for a sector that relies heavily on public funds to stay afloat.

December 17, 2009|By Gaelle Faure and Henry Chu

Reporting from Paris and London — The French government Wednesday proposed a hefty tax on bankers' bonuses similar to one instituted in Britain to discourage rewards for a sector that now relies heavily on public funds to stay afloat.

Finance Minister Christine Lagarde unveiled a onetime 50% levy on any bankers' bonuses exceeding about $40,000. The tax, on reward payments made in 2010, would be paid by the employers rather than the bonus recipients.

Lagarde's announcement, a week after the British government put forward an almost identical tax scheme, was widely expected. As in Britain, the issue of bankers' pay has been highly volatile in France, with many people outraged by the idea of big bonuses in a sector whose risky practices precipitated the global financial meltdown and recession.

After London's move, French President Nicolas Sarkozy and British Prime Minister Gordon Brown issued an unusual joint editorial arguing that a bonus tax "should be considered a priority" and was fair given public bailouts of the banking sector.

"We worked hard for it to be considered on an international level," Lagarde told reporters. "It's now a French and British proposition."

Whether any other countries will follow the Anglo-French example is difficult to say. Some other European nations have expressed interest in the idea, including Germany, but it is far from certain that their governments have either the power or political capital to implement it.

Lagarde said Sarkozy first mooted the 50% levy at the end of August. The bill is to be brought to Parliament early next year.

As in Britain, critics say the tax could hurt Paris' status as a financial hub by encouraging big banks to consider bolting for other countries, such as Switzerland, perceived to be friendlier to the industry. But others dismiss that argument as exaggerated, as the tax is a onetime levy.

The united front by London and Paris comes after days of speculation over tension across the English Channel on economic issues. British financiers were less than enthusiastic about the appointment of Michel Barnier, the former French foreign minister, to the post of internal market commissioner for the European Union, an appointment that Sarkozy boasted was a victory for France over the excesses of Anglo-Saxon capitalism. Partly in response, Brown scrapped a planned meeting with Sarkozy, British news reports said.

But the two apparently came together over the bonus issue and published their joint editorial last week in the Wall Street Journal.

"We have . . . learned that when crises happen, taxpayers have to cover the costs," the two leaders wrote. "It is simply not acceptable for them to foot the bill for losses in a deep downturn, while institutions' shareholders and employees enjoy all the gains as the economy recovers."

Faure is a special correspondent.

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