France Risks Higher Unemployment If Fiscal Incentives Cut, Report Warns

by Ulrika Lomas, Tax-News.com, London

11 January 2006

As the debate over the tax costs associated with the employment of labour in France continues, a new report due to be submitted to French Prime Minister Dominique de Villepin has warned that the elimination of fiscal employment incentives would cost hundreds of thousands of jobs nationally.

According to the French daily Les Echos, an early version of a report by the Conseil d'orientation pour l'emploi which examines the effectiveness of tax breaks in job creation has calculated that their elimination would result in the loss of 800,000 jobs in France.

The report suggests that the employment subsidy, costing EUR5,000 to EUR10,000 per job, is one of the most cost effective methods of creating jobs.

The report comes as the government attempts to diffuse a political storm caused by Hewlett Packard's decision last September to cut 1,240 jobs despite being in receipt of state aid.

In response, President Jacques Chirac indicated in his New Year's Eve address that new business-friendly tax reforms designed to make France a less expensive and more attractive country for multinational companies to employ workers would be a priority for the government.

"Our system of corporate charges must favour companies that employ people in France," the President stated.

Speaking last week, Chirac told representatives from the business community and trade unions that the government is working on plans to base the social security contributions made by companies to fund health and welfare services for their employees on corporate profits rather than wage bills in order to cut employment costs for companies in France.

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