8 Nov 2012

French govt announces business tax breaks

9:14 pm on 8 November 2012

The French government has announced tax breaks for businesses to try to make the country more internationally competitive.

Industrialist Louis Gallois was asked by the new government to look at how France could close the gap on its rivals such as Germany.

Value added taxes will rise and public spending will be cut in order to fund tax credits for companies that keep jobs in France.

Mr Gallois, the former head of the EADS aerospace group, urged the administration to improve competitiveness. The IMF also called for similar action.

In an annual review of the French economy, the International Monetary Fund said on Monday that France should ease employment laws to make it easier to both hire and fire workers, as well as cut payroll taxes to encourage employers to hire more staff.

Prime Minister Jean-Marc Ayrault said the government was adopting nearly all the measures recommended in Mr Gallois' report, which was published on Monday.

Mr Gallois suggested laws should be changed to make the creation of start-up businesses easier. But his main proposal was to cut payroll taxes by 30 billion euros in two years.

The BBC reports the government has undertaken to cut public spending by 10 billion euros and raise another 10 billion by increasing VAT from 19.6% to 20% from 1 January 2014.

The middle rate, which applies to restaurant food, will rise from 7% to 10%. This will fund tax credits that will be available from next year.

The lowest rate of VAT, which applies to food bought in shops and domestic energy bills, will fall from 5.5% to 5%.