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France unveils €20 billion in business tax breaks to boost ailing economy

Text by FRANCE 24

Latest update : 2012-11-08

The French government announced on Tuesday it is to create 20 billion euros worth of tax breaks for businesses as one of a series of budgetary measures aimed at boosting the country's flagging competitiveness.

France’s Socialist government unveiled Tuesday measures to bolster the struggling industrial sector and make exporters more competitive but the package fell short of the shock therapy industry leaders are urging.

Prime Minister Jean-Marc Ayrault proposed new incentives for investment in innovation, small businesses and training, and tax credits for companies keeping jobs in France as a way of easing costs in the current downturn.

Unveiling the measures, Ayrault said the government was adopting almost all of the "shock" measures recommended in a report drawn up by Louis Gallois, one of the country's most prominent industrialists.

"The situation of the country calls for ambitious and courageous decisions," Ayrault said. "France needs a new model."

Despite his grim depiction of the current situation, the premier 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.

Measures included 20 billion euros in tax credits over three years, an extra 10 billion euros in public spending cuts and a 10 billion euros increase in consumer taxes, two-thirds of which would be in VAT sales tax from January 1, 2014.

Yet the package is not expected to attack the high payroll taxes that business leaders say keep them at a competitive disadvantage against foreign rivals and are a factor in their waning share of global export markets.

In Gallois' government-commissioned report submitted on Monday, the left-wing former EADS boss called for payroll taxes to be slashed by 30 billion euros ($38.35 billion) within two years, with the difference made up by higher consumer taxes, to deliver the "shock” the business sector needs.

President François Hollande, criticised in opinion polls for being too timid in tackling the economic crisis, has said he prefers a steady path to better competitiveness to shock therapy.

“What the French economy needs is not a shock but therapy, a deep therapy, a drawn-out therapy,” Finance Minister Pierre Moscovici told BFM television late on Monday.

Moscovici said the government would apply many of the 22 proposals in the Gallois report and spread them out over its five-year term to avoid a sudden jolt in consumption taxes that might hit households and stifle spending.

Gallois, the former head of aerospace company EADS, maintained that a shake-up is needed, telling RTL radio on Tuesday it was urgent to stem a decline that caused France’s trade deficit to balloon to a record 70 billion euros last year.

His report set industry heads against a government reluctant to shift more of the tax burden from employers to households struggling with rampant unemployment and an austerity budget.

Business leaders, who have lobbied hard for a cut in labour costs and complain Hollande does not have their interests at heart after he hiked company taxes in his 2013 budget, may react angrily if they feel the measures do not go far enough.

“France has lost its competitiveness due to being weighed down by taxes,” Thierry Breton, chief executive of IT services group Atos and a former finance minister and head of various telecoms and technology firms told BFM TV.

(FRANCE 24 with wires)

Date created : 2012-11-06


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