Europe is urgently seeking ways to finance increased defense spending as the era of US military dominance on the continent comes to an end. France is considering one of the most radical proposals yet: a tax targeting the country’s wealthiest citizens.
France’s Wealth Tax Proposal Gains Momentum
France’s Finance Minister, Eric Lombard, has proposed taxing the super-rich to finance military expansion, as the country plans to boost its defense budget by €3bn (£2.5bn) annually until 2030. At the same time, France is grappling with a national debt of €3.3 trillion.
Despite these financial pressures, “French residents have never been richer,” with household savings reaching a record €600bn, according to national news reports. “Money held in regulated savings accounts accounts for 15pc of France’s total assets.”
Government ministers are now looking at citizens’ wealth as a potential solution to the nation’s financial challenges.
The French parliament recently passed a 2pc wealth tax on individuals with assets exceeding €100m. While doubts remain over whether the bill will pass the Senate, it marks a “cultural shift” in France’s tax policy.
Lombard remains firm on the issue. “Those with significant savings must contribute by paying more taxes,” he stated in an interview with FranceInfo last week.
Could Britain Follow Suit?
The proposal has sparked discussions in the UK about whether similar measures could be introduced. Labour has committed to increasing defense spending to 3pc of GDP by the end of the decade.
The initial funding came from reallocating money from the foreign aid budget, but future financing remains uncertain.
Arun Advani, associate professor at Warwick University, commented: “It’s clear that there is going to be an increase to demand on defence relative to what we expected before the election.
Either you have to be quite severe in cutting the state even further when public services are struggling or raise the money somehow, which means going for tax.”
He added that wealthier taxpayers can “stack tax reliefs to pay substantially less than the top rate of tax in Britain,” with some high earners paying closer to 20pc rather than the nominal top rate of 45pc.
Labour’s Stance on a Wealth Tax
Rachel Reeves, the Chancellor, has already introduced aggressive tax measures, including expanding inheritance tax to cover pensions and raising National Insurance contributions for employers.
Meanwhile, a group of Labour MPs, including former shadow chancellor John McDonnell and former party leader Jeremy Corbyn, have supported a 2pc tax on those with assets over £10m.
However, Labour MP Brian Leishman dismissed the idea of using such a tax to fund military spending. “I am absolutely in favour of a wealth tax, but I would want to see it put towards vital public services, the NHS and education.
I wouldn’t necessarily support it being used for defence, but they’ve got to invest in people and communities rather than bombs.”
Before the last election, Labour ruled out implementing a wealth tax, but historical precedents suggest this position could change in response to national emergencies.
The Covid-19 pandemic, for instance, saw governments abandon previous commitments to fiscal restraint.
Will the UK Government Change Its Position?
Tom Selby of consultancy AJ Bell noted that while the government has repeatedly ruled out a wealth tax, “that doesn’t mean they won’t change their mind, particularly if they face a significant change in fiscal circumstances, such as having to massively hike defence spending.”
Despite this, Selby expressed skepticism that Labour would pursue such a policy for defense funding: “Given it’s less than a year since Starmer was elected on a promise to drive wealth creation, with a very clear goal of boosting economic growth, I’d be surprised if a wealth tax comes onto the agenda. Much more likely they’d look to flex borrowing rules a bit, as is happening in Germany.”
A government spokesman reaffirmed the UK’s commitment to “fiscal rules and sound public finances.” He added, “National security is a foundation of this Government’s Plan for Change, which is why we have increased defence spending by almost £3bn while delivering the highest pay rise for our armed forces in over 20 years.”
The UK government is expected to outline a path to reaching a 2.5pc defense spending target after its Strategic Defence Review is completed. “We will not give a running commentary while the review is undertaken,” the spokesman stated.
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