France's Constitutional Council rejected on Saturday a 75 percent upper income tax rate to be introduced in 2013 in a setback to Socialist President Francois Hollande's push to make the rich contribute more to cutting the public deficit.
The Council ruled that the planned 75 percent tax on annual income above 1 million euros (816 thousand pounds) - a flagship measure of Hollande's election campaign - was unfair in the way it would be applied to different households.
Prime Minister Jean-Marc Ayrault said the government would redraft the upper tax rate proposal to answer the Council's concerns and resubmit it in a new budget law, meaning Saturday's decision could only amount to a temporary political blow.
Ayrault said the Council's rejection of the 75 percent tax, and other minor measures, would not affect France's deficit-cutting efforts as it battles to comply with a European Union deficit ceiling of 3 percent of economic output next year.
While the tax plan was largely symbolic and would only have affected a few thousand people, it has infuriated high earners in France, prompting some such as actor Gerard Depardieu to flee abroad. The message it sent also shocked entrepreneurs and foreign investors, who accuse Hollande of being anti-business.
The Council, made up of nine judges and three former presidents, is concerned the tax would hit a married couple where one partner earned above a million euros but it would not affect a couple where each earned just under a million euros.
UMP member Gilles Carrez, chairman of the National Assembly's finance commission, told BFM television, however, that the Council's so-called wise men also felt the 75 percent tax was excessive and too much based on ideology.
Hollande shocked many by announcing his 75 percent tax proposal out of the blue several weeks into a campaign that some felt was flagging. Left-wing voters were cheered by it but business leaders warned that talent would flee the country.
Set to be a temporary measure that would end once France is out of economic crisis, the government has estimated the tax could raise some 300 million euros a year, a not insignificant sum as it strives to boost public finances in the face of stalled growth.
The Constitutional Council is a politically independent body that rules on whether laws, elections and referenda are constitutional.
Saturday's decision was in response to a motion by the opposition conservative UMP party, whose weight in fighting Hollande's economic policies has been reduced by a leadership crisis that has split it in two seven months after it lost power.
(Reporting by Emile Picy; Writing by Catherine Bremer; Editing by Alistair Lyon)
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