PARIS: France will ease payroll taxes by ¤20bn over three years, funding that with spending cuts and sales tax rises, in a tougher-than-expected response to business leaders’ demands to reverse decades of industrial decline.
The Socialist government, under pressure to bring down high labour costs but wary of shifting too much of the tax burden onto households, will offer companies tax credits from next year and raise consumer taxes from 2014.
Prime Minister Jean-Marc Ayrault, unveiling the measures at a news conference, said the government aims to raise ¤10bn through small rises to consumer taxes and save a further ¤10bn through public spending cuts over the next few years.
The measures went much further than had been expected in answering a call by industrialist Louis Gallois for a ¤30bn ($38.35bn) cut to payroll taxes in a government-commissioned review submitted on Monday. “France is not condemned to the spiral of decline. But we need a jolt at a national level to regain control of our destiny,” Ayrault said.
“This is about giving our companies room to manoeuvre.”
Whereas the proposal by Gallois, former head of aerospace giant EADS, on cutting payroll taxes would only have benefitted profitable firms, the offer of tax credits will also apply to companies who make too little to pay tax.
The tax credits should equate to a temporary six percent cut in companies’ labour costs. BNP Paribas economist Dominique Barbet said the main advantage of offering tax credits rather than directly cutting social charges was that it would limit the volatility of fiscal income for the state.
The general value-added tax rate will rise from January 1, 2014 to 20 percent from 19.6 percent and the special VAT rate on restaurants will rise to 10 percent from seven percent. For the longer term, the package proposes a new green tax from 2016.
The package also contains incentives for investment in innovation, small businesses and training to try and restore lagging competitiveness that has seen France’s share in global export markets slide in the last two decades.
Industry leaders have lobbied hard in recent weeks for cuts to the high payroll taxes they say keep them at a competitive disadvantage against foreign rivals and are a factor driving France’s trade deficit to a record ¤70bn last year.
Reuters
