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High Taxes Have Created Brain Drain in France

10/23/2015 05:48 EDT | Updated 10/23/2016 05:12 EDT
Martial Colomb via Getty Images
Aerial viev of Paris

France, with its Eiffel tower, its cafés, its castles and its history, sounds like an idyllic dream. Yet French youths are leaving their country in droves. The number of French expatriates has increased 27.5 per cent since 2006, to reach 204,000 in 2013. A poll reveals that 55 per cent of those who left do not miss France, and 42 per cent find the idea of going back to France "worrying."

What has happened to their joie de vivre? High taxes, high unemployment and an adverse climate for entrepreneurship are the reasons behind the French exodus.

In 2013, the most recent year for which figures are available, French government revenue from taxes and social contributions represented 47.3 per cent of GDP.

This means that nearly half of what is being produced in France is being hogged by its government. Unsurprisingly, high taxes and strict labour regulations have led to an unemployment rate of 10.3 per cent and a whopping 24 per cent for those under 25.

Success is being undermined by a plethora of taxes, perhaps the most iconic being the 75 per cent tax on income above 1 million euros, which was withdrawn after only two years in face of the meager revenue it generated. Even the current Minister of the Economy declared that this supertax would have turned France into a "sunless Cuba."

Back in 2012, when this supertax had just been announced, British Prime Minister David Cameron offered to "roll out the red carpet" for French tax exiles. And indeed, emigration and the brain drain are a drag on the country that people are leaving, but an economic bonanza for the country on the receiving end. Young entrepreneurial spirits that could have started businesses in France, had it been a less punitive environment, started them abroad instead.

And those start-ups that do form in France have more difficulty recruiting specialized manpower. A few months ago, a group of French high-tech start-ups launched a high-profile media campaign urging highly qualified expats to return home, and created a job board website dedicated to innovative start-ups. So far, the initiative hasn't lured a single expat back.

Specialized and highly entrepreneurial expats from all over the world have been a godsend to destinations that know how to encourage business. A 2007 study found that 25.3 per cent of high-tech and engineering firms in the U.S. between 1995 and 2005 had at least one foreign-born key founder. In 2005, these companies produced $52 billion in sales, and employed 450,000 people.

A 2010 study by Montreal economists Reuven Brenner and Gabrielle A. Brenner found that in 2006, "immigrants were responsible for 24.2 per cent of the international patent applications filed in the U.S. (with Chinese entrepreneurs accounting for the most, followed by Indians, even though immigrants from China and India constitute less than 1 per cent of the U.S. population)."

This problem is also a Canadian concern. A May 2015 survey of high-impact Canadian firms revealed that "finding employees to expand and scale their business ranks as one of the top challenges identified by entrepreneurs." Lower and less progressive taxation would help attract and retain highly specialized labour and entrepreneurially minded immigrants.

The importance of foreign talent is obvious in the sports world. No one could deny the contributions of Finn, Czech and Slovak expats to the Montreal Canadiens, for instance. Why would it be any different in the world of business?

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