Hollandes voorstel voor miljonairsbelasting van de baan (en)

BRUSSELS - French president Francois Hollande i suffered a major political blow over the weekend when his flagship policy to heavily tax the very rich was struck down.

The Constitutional Council on Saturday (29 December) ruled that the tax - 75 percent for those earning over one million euros a year - was unconstitutional because it taxed individuals rather than households.

The loss of the tax, which would only have applied to around 1,500 individuals, is more politically than fiscally important.

The tax featured during Hollande's presidential campaign in spring and was one of the first pieces of legislation to be worked on when he came to office.

But although the predicted revenue from the levy was small, the outfall was loud.

Several rich French citizens - among them actor Gerard Depardieu - said they would move abroad, most notably to neighbouring Belgium.

Hollande's government has played down the council's ruling and said it would look at ways to re-table the tax in 2013. "We're not giving up," finance minister Pierre Moscovici told Journal du Dimanche.

But the Council's ruling that the levy should apply to households would considerably extend the number of people affected.

The centre-right opposition - until now riven by infighting over its leadership contest - has seized on the ruling with politicians lining up to denounce the "incompetency" of the government or the premise of the law.

The law formed part of Hollande's plan to bring the country's budget deficit below three percent of GDP in 2013, required by EU rules and important for its overall relations with fiscally austere Germany.

Despite the fact that the council did not strike down other parts of the government's tax policy, such as a rise in capital gains tax, next year is unlikely to be much easier for Hollande.

Unemployment remains high at over 10 percent and while the government is hoping for a return to economic growth this year - critics have denounced the estimates as too optimistic. Meanwhile Hollande's own popularity is flagging.

The president is due to give a televised address on Monday evening in which he outlines his hopes for the coming year. But according to Le Figaro newspaper "there is nothing good to announce for 2013."