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France 'needs patriotic effort' to regain competitivity

A government-commissioned report released on Monday said France needs to soften labour laws and cut €30 billion off payroll taxes in order to increase competitiveness. The government has already ruled out implementing any “shock therapy” proposals.


French industrialist Louis Gallois called for a patriotic effort to support shock therapy to reverse declining competitiveness on Monday as he handed in a review the Socialist government commissioned but is unlikely to heed.

Gallois said his report prescribes slashing 30 billion euros ($38.54 billion) off payroll taxes and loosening labour laws to reverse a long decline in industrial competitiveness that has eaten away at exports and bled factory jobs.

The widely leaked recommendations have set frustrated industry heads against a government reluctant to shift part of the tax burden from employers to households which are already struggling with rampant unemployment and an austerity budget.

Gallois said the 22 recommendations set out in a review to be detailed to media later in the day were tough but necessary.

“The French people need to support this collective effort which could be a magnificent project for our country winning back our industry,” he told reporters as he left the prime minister’s office. “This will require real patriotism.”

Industry leaders, who say shouldering some of the highest labour charges in the world puts them at a disadvantage against foreign rivals and is the cause of a ballooning trade deficit, have joined forces to demand a radical shake-up.

Gallois suggests slicing 20 billion euros off employers’ social contributions and 10 billion off those paid by workers, and compensating with spending cuts and higher consumption taxes.

As the proposals leaked out in recent days, President Francois Hollande snuffed out any expectations of radical reforms by ruling out any “shock” measures.

His aides say raising taxes on households is out of the question when the country is grappling with its toughest austerity budget in years to meet deficit-cutting goals.

“This report is a contribution. It’s the government that governs,” cautioned Social Economy Minister Benoit Hamon.

Hemmed in by his pledge to cut the 2013 deficit to 3 percent of economic output from 4.5 percent this year, Hollande has limited his language to promising a “competitiveness pact”.

“A shock causes trauma whereas a pact reassures,” Finance Minister Pierre Moscovici explained last week.

The government may propose trimming labour charges for small firms in certain sectors, Fleur Pellerin, minister for small and medium-sized business, said on Sunday.

But the government’s response to the report, due on Tuesday, is set to focus mainly on measures that would not affect labour costs, like investment in innovation and training.

“We cannot simultaneously restore public finances and impose a competitiveness shock - a massive and immediate transfer of employer payroll taxes onto taxes,” said a government source.


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