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France has unveiled tax breaks for businesses worth up to 20 billion euros a year in a bid to address the flagging competitiveness at the heart of the country’s economic malaise.
“France needs a new model that will put it back at the centre of the world economy,” Prime Minister Jean-Marc Ayrault said, adding the government had decided to implement virtually all of the measures recommended in a report drawn up at its request by industrialist Louis Gallois.
Designed to offset the high payroll taxes that have dulled the competitive edge of French companies both in the world and the eurozone, the tax credits will be financed by a combination of cuts in public spending and increases in sales taxes (VAT).
The measures announced yesterday follow a stark warning from the International Monetary Fund that France must implement a programme of radical structural reform or risk falling behind neighbours like Italy and Spain who have been forced into reform as a result of the eurozone debt crisis.
Despite a grim depiction of the current situation, the Prime Minister insisted that the administration was capable of emulating countries like Sweden by reforming its economy without dismantling its social welfare system.
“France is not condemned to an inevitable spiral of decline but a national shock is essential if we are to retake control of our destiny,” Ayrault said.
Gallois, the former head of the aerospace giant EADS, recommended in his report a “shock” to reduce the cost of doing business in France with a 20-billion-euro cut in the contribution by companies to finance the country’s generous social security system and health service.
He said he was happy with the response to his report.
“The government has faced up to the problem of France’s competitiveness,” he said.
A proposal from Gallois to cut employees’ contributions by 10 billion euros was not however adopted by the government and employers’ demands for reforms that would make it easier to hire and fire went unheeded.
Reducing employee’s social contributions would have given a further boost to the competitiveness of French firms by enabling employers to pay lower wages without reducing the take-home pay of workers.
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