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Moscovici Rules Out 'Competitiveness Shock'

by Ulrika Lomas,, Brussels

29 October 2012

During a recent interview, French Finance Minister Pierre Moscovici confirmed his opposition to the idea of increasing the country’s general social contribution (CSG) as part of plans to reduce the cost of labour in France, thereby boosting competitiveness.

The minister warned that a brutal fiscal shock on the purchasing power of households would not only be ‘unjust’ but would also merely serve to deprive companies of part of their market.

Moscovici’s remarks are a clear attempt to distance both himself and the government from a report drafted by French investment commissioner Louis Gallois, which reportedly advocates a EUR30bn (USD38.9bn) ‘competitiveness shock’ to boost the competitiveness of French industry, to be achieved notably by means of increasing value-added tax (VAT) and the general social contribution.

Underscoring the need to ensure that the financing of social protection in France does not weigh entirely on work, Moscovici acknowledged that there will indeed be fiscal decisions to take to finance a reduction in charges.

The minister also alluded to government plans to carry out structural reforms on an unprecedented scale to boost competitiveness, not just in terms of production costs but also in terms of boosting innovation and training, emphasizing the need for a strong policy for competitiveness.

The minister’s remarks follow hot on the heels of reports that Louis Gallois has advocated in his report a EUR30bn ‘competitiveness shock’, to be financed by both expenditure cuts and tax rises.

In his report, due to be officially submitted in November, the former French head of European aerospace group EADS Louis Gallois is said to propose that employer contributions in France are lowered by EUR20bn and wage contributions reduced by EUR10bn over a period of two to three years. The cuts would apply to wages of up to 3.5 times the minimum wage.

Gallois has suggested that the planned reduction in contributions be financed by a reduction in public spending, greater than the EUR10bn currently envisaged within the framework of the 2013 finance bill, by a moderate rise both in VAT and CSG, as well as by a new environmental tax imposed on diesel.

A moderate rise in VAT and CSG has been proposed to ensure that the increase can be borne by households in France.

Despite Moscovici’s latest revelations, he insisted that the government will give due consideration to the Gallois report.

However, the government is now alluding to a competitiveness “trajectory” rather than a competitiveness “shock”.

TAGS: environment | Finance | tax | investment | value added tax (VAT) | training | environmental tax | France

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