France faces reality check with tax reforms

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France faces reality check with tax reforms

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French Prime Minister Jean-Marc Ayrault has presented his latest economic proposals for restoring economic growth in what he called an “unprecedented” package of measures.

It is a tougher-than-expected response to business leader’s calls for action to reverse decades of industrial decline, and falling global market share.

The measures include a payroll tax holiday worth some 20 billion euros for employers.

“These 20 billion euros will come from 10 billion euros of extra cuts in public spending, and 10 more from restructuring VAT, and environmental taxes,” claimed Ayrault.

The tax credits kick in next year, with the consumer tax rises only coming in 2014 as the Socialists try to ease the pain of reforms.

The tax breaks are the equivalent of lopping 6% off employer’s labour costs, and represent a bigger- than-expected concession after a government advisor and former boss of EADS called for a 30 billion tax giveaway. In his report Louis Gallois called for “shock therapy” for France. This is not that, but compared to recent policy, it is a significant jolt.