France's highest court rules proposed 75pc supertax rate unconstitutional

The measure, which is blamed for an exodus of wealthy French abroad, was a pillar of the Socialist leader's successful Spring election campaign.

But in an unexpected blow, France's Constitutional Council ruled that the tax band did not guarantee equality for taxpayers because two households with the same total revenue could end up with different tax bills.

Although the tax would have hit only around 1,500 people, it was seen as the totem in Mr Hollande's political manifesto, which said it was justfiable in a time of economic crisis.

Mr Hollande, who once publicly declared "I don't like the rich", had called for economic "patriotism" from France's wealthiest citizens.

However, it sparked anger among the country's entrepreneurs and entertainers, who warned it could force them to leave the country. Actor Gérard Depardieu caused a national outcry when he announced he was moving to Belgium, apparently to avoid French taxes.

The "supertax", intended to be in place for two years, is part of the 2013 budget law and was due to have taken effect from Jan 1. Earnings over EU 1 million (£818,500) a year would have been taxed at 75%.

Immediately after the court's ruling - issued by email yesterday morning - the French prime minister, Jean-Marc Ayrault, issued a statement saying the government "takes note" of the decision, but said it would draw up "a new proposal" to be part of the next budget law.

He gave no details of how or when the "supertax" rate proposal would be redrafted but said the constitutional council's concerns would be taken into account.

Mr Ayrault's office said dropping the 75% tax band would lower tax revenue by less than euro 500 million in 2013, suggesting it would not hamper attempts to reduce the country's public deficit to 3% of gross domestic product from a forecast 4.5% this year.

The Constitutional Council, a politically independent body made up of nine judges and three former presidents, had been asked by the former centre-right president Nicolas Sarkozy's UMP party to examine the 75% tax proposal

Although it did not decide that the new tax was too high, it did rule that it "failed to recognise equality before public burdens" because unlike other income taxes it applied to individuals and not households.

The council also declared other proposed tax increases, due to take effect on January 1, as excessive or a violation of equality. It reduced the tax rate on stock options and free shares from a possible 77% to a maximum of 64.5%.

"Politically, this has an impact because it was a symbol for French public opinion, and was considered abroad as the emblem of French tax excess," said Dominique Barbet, senior economist at BNP Paribas in Paris. "In deficit terms, it's truly negligible."

The setback on the supertax follows a public spat between Mr Depardieu and Mr Ayrault, the prime minister, over the former's decision to relocate to the Belgian border town of Nechin.

After Mr Ayrault called Mr Depardieu's action "shabby", the actor wrote a furious open letter to the Journal du Dimanche.

"Shabby, who are you calling shabby?" he wrote. "I'm leaving because you consider success, creation, talent, in fact being different, must be punished. I'm not demanding approval, but I could at least be respected."

The star claimed he had paid 85% of his income in taxes in 2012. "I've always paid my taxes whatever the rate, under whatever government in place. At no time have I failed in my duty."

Billionaire business chief Bernard Arnault, head of the luxury goods company Louis Vuitton Moet Hennessy, also came in for criticism when he sought Belgian nationality, although he insisted his flight from France was not for fiscal reasons.

At the G20 summit in Mexico, British prime minister David Cameron offered to "roll out the red carpet" to French businesses seeking tax exile in the United Kingdom, an offer renewed by London Mayor Boris Johnson in October.

The finance minister Pierre Moscovici, put a brave face on the political setback last night, saying "Our deficit-cutting path will not be affected".

However, the International Monetary Fund recently forecast that France would miss its deficit target next year, and recently released growth predictions suggest the French economy will grow considerably less than the 0.8% Mr Hollande is seeking in his attempts to balance the country's books.

The French parliament had already passed the 2013 budget, including the new "supertax", which would have hit individuals earning more than 1 million. Regular income tax is calculated on household incomes, so a couple whose individual incomes were just under euros 1 million would have escaped the tax even though their combined income was over euros 1 million.