France to unveil measures to boost competitiveness

Reuters News
Posted: Nov 05, 2012 6:12 PM
France to unveil measures to boost competitiveness

By Nicholas Vinocur

PARIS (Reuters) - President Francois Hollande will unveil measures on Tuesday to revive France's struggling industrial sector and make its exporters more competitive, although critics say that the package falls short of much-needed shock therapy.

The Socialist government will outline proposals around 0600 EDT which are expected to focus on lowering labor costs, fuelling corporate investment and helping small- and medium-sized businesses flourish through fiscal incentives.

The package is to draw on the conclusions of a government-commissioned report by industrial Louis Gallois that prescribes cutting 30 billion euros ($38 billion) off payroll taxes and compensating with spending cuts and higher consumer taxes.

Finance Minister Pierre Moscovici said the government would apply most of the report's 22 proposals, spreading them out over its five year term to avoid a sudden jolt in taxes that might hit households and crimp consumer spending.

"I have always said that what the French economy needs is not a shock but therapy, a deep therapy, a drawn-out therapy," he told BFM TV late on Monday, adding that plans were designed to preserve buying power.

But employers have already expressed disappointment, arguing that measures widely leaked in French media are less ambitious than the shock therapy they had advocated.

Le Point magazine reported on Monday that the government would grant 20 billion euros in tax credits to firms, in exchange for guarantees that they will keep jobs in France. Also, sales tax could rise to 20 percent from 19.6 percent.

"It would really be a mistake to say that we, the government, will decide what you, the companies, are meant to do with reduced labor costs," Laurence Parisot, head of the Medef employers' group, told BFM TV.

"Only companies can make the best choice, so we need to give them enough room to maneuver and trust them."

With his approval rating as low as 36 percent, Hollande has dampened hopes for a jolt to the economy, ruling out a heftier hike in sales tax that his predecessor Nicolas Sarkozy had proposed as a way of easing high labor costs for employers.

Yet he promised "strong decisions" for France, vowing to shore up an economy which has fallen behind competitors in the past decade with a trade deficit of 70 billion euros in 2011 against a surplus of 158 billion euros for Germany.

German unemployment is at 6.9 percent against 10.2 percent in France, which has lost 750,000 industrial jobs in a decade, while French industrial margins have slid as Germany's soared.

(Reporting by Nicholas Vinocur; Editing by Giles Elgood)