France to cut payroll taxes by 8 to 10 billion euros per year

Move aiming to restore competitiveness, would shift part of tax burden onto employees
By Daniel Flynn
||Last Updated: 10/04/2012

PARIS (Reuters) — France's government plans to slash payroll taxes paid by companies by 8 to 10 billion euros per year to try to restore competitiveness and kick-start the economy, newspaper

Le Monde

has reported.

The move, which would cost some 40 billion euros over the government's five-year mandate, would be offset by shifting part of the tax burden onto employees via an increase in the CSG levy that helps to fund France's social security system, the newspaper said.

The measure will be targeted at workers earning between 1.6 and 2.2 times the minimum wage, Le Monde said, in an effort to benefit companies exposed to international competition.

An official close to President Francois Hollande said that measures to boost competitiveness were under consideration and the idea was to phase them in over the next three years rather than all at once.

"We want a competitiveness strategy rather than a competitiveness shock," the official said. "We're not going to ease the tax burden all at once."

Hollande is struggling to convince voters as well as senior members of his Socialist Party that he can keep promises made before May's election to curb unemployment and revive the economy while also slashing the public deficit.

He has tasked a commission led by former EADS CEO Louis Gallois to present proposals on boosting France's flagging competitiveness. Finance Minister Pierre Moscovici said that Gallois would submit his report on Nov. 5.

Budget Minister Jerome Cahuzac declined to comment on the newspaper report as he left a cabinet meeting. Small Businesses Minister Fleur Pellerin said: "All the options are open at this stage, except for an increase in VAT to fund social security. We are waiting for the presentation of the Gallois report."

French business leaders have long called for a decrease in payroll taxes, which rank amongst the highest in the world.

Le Monde did not say when a government proposal could be ready, but it would likely come after a report on social security financed commissioned by Prime Minister Jean-Marc Ayrault due early in 2013.

Employers groups have warned that a 2013 budget, which slapped 10 billion euros in extra taxes on firms, risked worsening their competitive position and debt levels.

Despite rock-bottom financing costs, profit margins at French firms are running at a 30-year low.

Unemployment in France has risen to above 10 per cent after three consecutive quarters of zero economic growth. PMI survey data of business activity, which recorded a sharp deterioration in sentiment after the summer, point to an economic contraction in the third quarter.

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