Oh, Chateau! Hollande?s Anti-Foreigner Tax Mirrors Le Pen?s Political Posturing

What does a summer estate in the French countryside have to do with a dilapidated slum on the outskirts of Paris?

More than you'd think, as it turns out. Both of these properties tend to be occupied by foreign nationals -- and as such, they have both come under fire from French politicians of very different stripes.

The new Socialist government under President Francois Hollande announced on Wednesday a plan to increase taxes on holiday homes owned by well-to-do foreigners. Rental income taxes would jump from 20 percent to 35.5 percent, and capital gains taxes on sales of property would almost double from 19 percent to 34.5 percent.

The taxes would be a major disincentive for foreign visitors. But for the time being, Hollande is determined to keep the focus on the economic well-being of France's own nationals. In that, he's not alone.

Noblesse Oblige

Most second homes in France are owned by British citizens -- the Dordogne region, about 100 miles from the Bay of Biscay, is one of their most popular destinations.

At least, it used to be that way. These are dog days for Dordogne, and higher taxes threaten to exacerbate the situation. Jean-Claude Cassac, the secretary general of the French Estate Agency Federation, told the Daily Telegraph newspaper that Hollande's decision was catastrophic.

The plummeting pound meant that the English had almost disappeared from the Dordogne house market. With this, it's as if they want to totally kill off the foreign home owner market in France, he said.

But the government argues that the taxes could generate €50 million in extra revue for 2012 alone, which would help the country's floundering economy.

Just this Monday, the French Court of Auditors released a dire report on the state of French finances. It found that Hollande and his new Socialist-majority Parliament won't meet budget targets unless they can somehow raise anywhere from €6 billion to €10 billion by the end of 2012.

Unemployment is at 10.1 percent and economic growth is expected to hit just 0.4 percent for this year, while public debt is fast approaching 90 percent of GDP.

So France needs all the income it can get, through budget cuts and tax hikes alike. And that puts Hollande, who ran as the anti-austerity candidate against incumbent President Nicolas Sarkozy in May, in a tough spot -- he needs new sources of income that won't squeeze French citizens.

His foreign homes tax gambit recalls the tactics of the far-right party that made an impressive showing just four months ago.

Folie à Deux

Marine Le Pen, leader of the National Front, was in many ways Hollande's counterpoint during the election's first round in April, though they shared an opposition to harsh austerity. Le Pen advocated for greater national security, the preservation of French culture and fiscal protectionism.

She inherited the Front from her father, Jean-Marie Le Pen, who had become a political pariah due to a widespread conviction that he was racist and anti-Semitic. Marine Le Pen wanted to update her party's image -- but considering her strong stance against immigration and her opposition to the euro zone, shedding the stigma wasn't easy.

But then again, perhaps it wasn't really necessary.

Le Pen's intensely nationalist rhetoric had a strong appeal to growing segment of French voters who were desperate for a new direction. These citizens felt that globalization had resulted in the exportation of jobs, that joining the euro zone had tanked the French economy, and that immigration had become a security threat.

But the woman who came in at third place in first-round elections, bringing the once-fringe FN to the forefront of public discourse, watched her momentum fizzle just after Hollande's victory. She set her sights on Parliament but failed to win a seat from a poor mining district this June. Currently holding just two of Parliament's 577 seats, the FN has all but fallen off the map.

But Hollande seems to have learned from one of Marine's most important maxims: During tough times, targeting foreigners is a winning political tactic.

Of course, Hollande isn't targeting all foreigners -- only the rich ones, with their country vineyards and sprawling chateaus. That's a far cry from Le Pen's vehement crusade against immigration.

And Hollande's plan targets wealthy French as well. He supports a tax rate of 75 percent for anyone making more than €1 million per year, as well as special taxes for oil companies and big banks. He has even cut government salaries, including his own -- a largely symbolic but welcome gesture.

In an apparent faux pas, British Prime Minister David Cameron scoffed at the French government's tax plan during the G20 meeting in January. He predicted that the measures would lead to an influx of French businessmen to British soil, and said he would roll out the red carpet for the French firms that crossed the Channel, since their taxes would go to support British infrastructure.

French European Affairs Minister Bernard Cazeneuve's counter-scoff was somehow unconvincing. What I can answer to this statement from the British prime minister is that French bosses are patriots, he said.

L'État, C'Est Moi!

Le Pen may have been an extreme example of isolationist ideologue, and Hollande is certainly worlds away. But the tax hike on foreign-owned homes -- it is a huge one -- shows that French nationalism still makes for a very effective populist tool. Even the government's sweeping budget changes on the whole have been painted as a way to ensure France's ultimate autonomy.

As Hollande's Prime Minister Jean-Marc Ayrault explained in a parliamentary address on Monday, balancing the budget and shrinking the country's growing debt will free France from obligations to foreign powers.

Debt is a question of sovereignty, he said. An indebted France is a dependent France: dependent on rating agencies, dependent on financial markets.

It's hard to maintain that fashionable French aloofness when you're beholden to other countries for economic assistance, so budgetary independence has become the driving goal for France's new government. Still, there is a risk that their apparent hostility to foreign investment will inhibit the very growth that Hollande so desperately needs.