France Lowers Burden On Very Small Businesses

by Ulrika Lomas, Tax-News.com, Brussels

20 January 2012

Following a four hour summit meeting with the country’s social partners at the Elysée, French President Nicolas Sarkozy unveiled details of a series of agreed emergency measures, designed to reduce unemployment in France, including notably plans to grant very small businesses exemption from charges in respect of young people they recruit.

Eager to avoid a clash with unions, however, the President nevertheless announced plans to postpone until the end of January any decision on financing welfare reform in France, emphasizing that discussions between Prime Minister François Fillon, the government, and the various unions, would continue.

Underscoring the “extremely worrying” situation as regards the job market, President Sarkozy stressed that decisions must be taken swiftly, to address the issue.

President Sarkozy explained that money would be redeployed to support key measures, including the development of part time employment to avoid redundancies, training for the unemployed, and exemption from charges when recruiting young people, a provision applicable for a period of six months.

As part of its plans for welfare reform, the government had planned to increase the 19.6% standard rate of value-added (VAT), dubbed a ‘social VAT’, to finance a reduction in employers’ social contributions, to cut labour costs and to boost employment. To protect purchasing power and to avoid a backlash, the planned rise is not expected to exceed 2%.

Yet unions are opposed to such a measure, which they associate with a third austerity package, arguing that the plans would adversely affect purchasing power.

By way of an alternative to the government’s plans, France’s largest trade union confederation, the CFDT, recently put forward the idea of increasing the country’s general social contribution (CSG) by 7% in return for a 10% reduction in employers’ contributions.

CFDT leader François Chérèque, who championed the proposals at the meeting, insisted that the plans would have an important impact on competitiveness in France, explaining that the remaining 3% could be used, for example, to increase salaries, to invest in modern equipment thereby enabling companies to become more competitive, or even to lower the cost of products.

Defending the idea, Chérèque maintained that for employees, the measure would be both cost neutral and fair, noting that the general social contribution has the largest tax base and that everyone contributes.

Concluding his speech, President Sarkozy confirmed that, together with Finance Minister François Baroin, he would present by the end of the month the outlines of concrete plans for a tax on financial transactions, with the aim of applying the levy in the eurozone. Sarkozy reiterated that France is determined to lead the way for its partners in Europe, and welcomed support in the principle for the tax from Germany and from Spain.

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