France to Grant Businesses 20 Billion Euros in Tax Credit
By EW News Desk | November 8, 2012 11:10 AM EST
Acting on the recommendations of industrialist Louis Gallois, France will grant businesses 20 billion euros ($25.7 billion) in annual tax credits as a way of boosting the country's economic competitiveness.
The tax break, however, falls short of the 30 billion euros "competitive shock" recommended by the government-commissioned Gallois report.
The tax credit will apply to all businesses, not just to exporters, and benefits must be used to boost investment and employment, not to fund dividends or share buybacks.
To finance the projected revenue shortfall, the government plans to raise the main consumption sales tax to 20 percent by 2014, up from 19.6 percent today. The "intermediate tax," which covers items such as restaurant meals and home renovations, will also raise to 10 percent from 7 percent. The government also aims to save 12.5 billion euros from cuts to public spending and health insurance from next year.
Paying for the shortfall will see the government break an earlier promise that there would be no sales tax hike during President Francois Hollande's five-year term.
Prime Minister Jean-Marc Ayrault, after a meeting of officials to discuss the economy, said in a statement on Tuesday that the government had been forced to act because France "has known a decade of industrial stagnation."
France is not condemned to the spiral of decline. But we need a jolt at a national level to regain control of our destiny. France must win back its role as a great industrial power.
According to Ayrault, the tax credits are equivalent to a 6 percent subsidy in labour costs - which are among the highest in Europe.
Finance minister Pierre Moscovici is hopeful that the measures will lead to the creation of over 300,000 jobs over the next five years, as well as add half a percentage point to annual GDP growth over the same period.
"It is a moment of truth," Moscovici said. "It is a step no French government has taken before."
However, the government avoided a reduction in social welfare contributions by employers and employees alike, another key recommendation by Gallois, postponing any reform of the country's welfare system until next year.
France's convoluted welfare state, one of the world's most generous, is largely financed by payroll taxes. At the same time, the so-called social wedge - the reduction in workers' take-home pay that results from the taxes paid by them and their employers - is among the largest in the world, according to data from the Organization for Economic Cooperation and Development.
Most Popular Slideshows
- Derek Jeter With The New York Yankees Through The Years [IN PICTURES]
- George Clooney And Amal Alamuddin's Wedding In Venice: Photos Of Groom And His Family, Friends [Slideshow]
- NFL Recap - Week 4: Green Bay Packers 38, Chicago Bears 17 [PHOTOS]
- Melanoma Could Be Caused By Ageing Genes; Best Diet For Anti-Ageing; Celebrities Who Have Aged Gracefully
Join the Conversation
- Australian Stock Market Report – Afternoon September 29, 2014
- Australian Stock Market Report – Morning September 29, 2014
- Environment Ministry OKs $2.2B North Galilee Basin Rail Project On 23 Conditions
- Australian Stock Market Report – Midday September 30, 2014
- Global Markets Overview – September 29, 2014
- Forget Nexus 6 Release Date, Android Phones Will Soon Showcase Pure Google Apps & Features
- Boxing News 2014: Social Media War Between Boxers Continues As Pacquiao Repeats Comment That Mayweather Acts Like Uneducated Person, While Ignoring ‘Miss Pac Man’ Post
- Galaxy Note 4 Pre Order Starts in the US, Get Samsung Note Ahead of October 14 Release
- $249.99 Motorola Moto 360 Smartwatch's First Promo Out; 'Stone Leather' Replaces 'Gray Leather' - Available In BestBuy [Watch Video]
- BlackBerry Passport Sold Out As Preorders Reached 200,000
- iOS 8 And iOS 8.0.2 Security Flaw Revealed, Anyone Can Easily Bypass Touch ID And Passcode Security Features
- Australia Cracks Down On International Money Laundering Syndicate