PARIS (MNI) – Restoring the competitiveness of French firms will
take years and cannot be achieved simply by shifting part of their tax
burden onto consumers, the government’s budget and finance ministers
argued Sunday.

In separate television interviews, Finance Minister Pierre
Moscovici and Budget Minister Jerome Cahuzac warned that the proposal
for a E15 billion tax transfer from business to households, contained in
a manifesto published Sunday by 98 corporate leaders, could paralyze the
main driver of the French economy – namely, private consumption.

The CEOs of the country’s 98 biggest companies called collectively
for a E30 billion reduction in payroll charges currently earmarked for
social programs. In would be financed over two years by a 1.4-point VAT
hike, which would replace half the sum, and by public spending cuts,
which would account for the other half.

The size of the proposed payroll tax cut is comparable to a
proposal by industry executive Louis Gallois in a study demanded by the
government, according to media leaks ahead of its release on November 5.
The Gallois report has already become an embarrassment for Socialist
leaders, who overturned this summer a similar measure planned by the
previous government.

While the ministers conceded Sunday that high social payroll taxes
contribute to the labor costs shouldered by domestic producers, they
underscored that the problem of competitiveness behind the country’s E70
billion trade deficit had to be tackled from various angles over the
medium term – “over a five-year mandate, at least,” Moscovici said.

For both ministers, it is the reduction of the government’s own
deficit, from nearly 5% of GDP this year to 3% in 2013, that takes
priority. After imposing E10 billion worth of tax hikes on households in
next year’s budget, they fear that an additional burden could undermine
economic activity to such an extent that the deficit target would be
overshot and the government would lose the confidence of financial
markets that allows it to finance its debt at historically low borrowing

“I don’t want to drive the economy into recession; I don’t want to
hit the purchasing power of households any harder – especially the
working and middle classes,” Moscovici said, reminding that slashing the
government deficit next year already involves measures totaling E30

“And they want us to do E30 billion more on top of that?” he asked.

“In fact, I don’t believe in a competitiveness shock,” the finance
minister said. “We absolutely want to take action on
competitiveness…but not by a shock; rather, by a trajectory, by
continuous measures over time.”

Moscovici highlighted other measures demanded by the CEOs that are
more in line with the Socialists’ strategy, such as subsidies and loans
for business investment that favors innovation, and better professional
training for young employees.

Cahuzac stressed that “business competitiveness is not solely a
matter of labor costs.” As an example, he estimated that the labor cost
savings proposed by the CEOs would shave at most E120 off the production
costs of a E15,000 car.

While recognizing the need to “rebalance the structure of growth in
France,” the budget minister argued that it was essential to protect
“that bit” of growth that private consumption should assure next year in
order to allow the government to pursue structural reforms in the years
to come.

“We’ve done everything to preserve consumption,” he said. An
alternative source of financing for social programs, namely the CSG tax
on incomes and investment returns, would also fall heavily on
households, he warned.

Concerning the CEOs’ plea for E60 billion worth of cuts in
government outlays over the next five years, Cahuzac noted that the
Socialists themselves aim to save E50 billion and have frontloaded E12.5
billion next year.

Prime Minister Jean-Marc Ayrault intends to unveil the government’s
strategy to bolster competitiveness the day after the release of the
Gallois report.

–Paris newsroom +331 4271 5540; Email:

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