–But Labor Unions Sceptical Of The Idea

PARIS (MNI) – If French President Nicolas Sarkozy decides to hike
value-added taxes to shield domestic firms from foreign competition, he
will have the backing of business, the head of the employer group Medef
indicated Tuesday.

In his New Year’s greeting to the nation, Sarkozy warmed up the
controversial proposal for a “social VAT” that would shift part of the
tax base for social outlays from payroll contributions to private
consumption.

“We must lighten the burden on labor and impose a contribution from
imports which compete with our products via cheap labor,” the president
argued. “We must now give priority to growth, competitiveness and
re-industrialization, which are the only means of creating jobs and
purchasing power.”

Given the complexity of such a fiscal reform, the proposal appeared
at first to be more of a plank in Sarkozy’s campaign platform for the
presidential elections this spring rather than a measure for immediate
application.

Yet Sarkozy intends to push ahead with the project after convening
employers and union leaders for round table discussions on January 18,
the French business daily Les Echos reported Tuesday, citing a member of
the government:

“We’ve got to force the issue by demonstrating our determination,
even if the application of the reform could come after the presidential
election,” the unnamed official was quoted as saying.

The scope of the project would be limited to payroll taxes to fund
family support payments, Les Echos said. The justification often heard
is that these social measures — in contrast to unemployment insurance
and pensions — are not the sole responsibility of firms and their
workers.

Whether employee payroll contributions would be reduced along with
those of companies in order to offset the negative impact on consumption
of a VAT hike is still under study, the newspaper said.

The VAT hike could be part of a third mini-budget after the series
austerity measures announced in August and November. But the goal this
time would not be to reduce the deficit but rather to protect domestic
producers — boosting their competitiveness by reducing social
contributions and making imports costlier, Les Echos said, noting that a
one-point hike in the VAT, currently at 19.6%, would produce up to E10
billion in fresh revenues.

For the president of the employer association, Laurence Parisot, a
VAT hike should be flanked by an increase in the investment income tax
CSG, which would permit a reduction in employer charges “but also the
social contribution that employees pay.”

The “social advantage” of this strategy would be to boost net
salaries and purchasing power, Parisot explained in a radio interview.

Employers are also in favor of expanding the use of short-time work
during the economic downturn in order to cap the rise in unemployment,
following Germany’s example, Parisot said. She urged the government to
eliminate social charges completely for each new employee hired by small
firms.

Labor unions agree with the use of part-time unemployment to
project jobs, provided the government comes up with financing, FO union
leader Jean-Claude Mailly said in a separate radio interview on Tuesday.

Mailly was more sceptical of the “social VAT”, which he dismissed
as an “oxymoron” laden with campaign propaganda: “We can’t launch that
three months before the presidential elections.”

France’s chronic trade deficit has “very little” to do with
domestic labor costs, the union leader claimed: “One or two points of
VAT will not allow us to compete with Chinese products.”

In any case, the unions will not allow themselves to be
“instrumentalized” by Sarkozy’s campaign strategy, he warned.

Within the opposition Socialist Party, some on the right wing have
backed the concept of a limited “social VAT.” But shadow economics
minister Michel Sapin Monday rejected a plan “to lighten the burden on
companies by making all the French pay.”

Socialist Party presidential candidate Francois Hollande has
floated the idea of an ecology tax to replace labor taxes. Sarkozy
himself had once promoted a CO2 emissions tax before abandoning it in
2010 because of lack of support within the European Union.

–Paris newsroom +331 4271 5540; Email: ssandelius@marketnews.com.

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