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French government to implement proposals to boost competitiveness

The French government unveiled 20 billion euros in tax breaks for businesses on Tuesday, as part of its attempt to boost France’s competitiveness. A report out on Monday showed France lagging behind, with its economic woes much to blame.

Reuters/Gonzalo Fuentes
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Prime Minister Jean-Marc Ayrault said that the government would implement nearly all of the recommendations made by French industrialist Louis Gallois on Monday. Gallois’s dismal diagnosis of France’s competitiveness suggested 22 measures, which included a 20 billion euro tax break for businesses and a 10 billion euro reduction on employment levies.

Tax breaks for businesses will be partly financed by increases in the VAT sales tax, with restaurant and hotel tax going up from seven to 10 percent.

The VAT on drinks sold in bars, cafes and restaurants will also go up from 19.6 to 20 percent.

Restaurateurs and hoteliers reacted vehemently on Tuesday, following the announcement, saying the tax increase could cost thousands of jobs.

Jerome Falourd, manager of the Louis D’Or bistro in Paris, told the AFP news agency that the tax increase will be hard on restaurateurs.

“People will be paying more attention to what they’re paying,” he said. “We might have to revise prices. We’ll see.”

The government did not, however, decide to adopt employer suggestions to make it easier to hire and fire employees.

Nor did it make plans to follow Gallois’ proposal to cut employee contributions by 10 billion euros. The move would enable employers to pay lower wages without reducing workers’ take-home pay.

France’s labour costs are a fifth higher in the manufacturing sector than the eurozone average. The high cost of employment is seen to have contributed to the increase in unemployment in the country, with over three million people currently without jobs.

Ayrault said the country needed to make courageous and ambitious decisions in the face of economic troubles.

“France needs a new model that will put it back at the centre of the world economy," he said.

Finance Minister Pierre Moscovici said the measures announced Tuesday would create hundreds of thousands of jobs.

The measures come on the heels of a grim warning by the International Monetary Fund, that France implement structural reform in order to avoid slumping behind eurozone neighbours Spain and Italy.
 

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