(Australia-NewsWire.Com, November 12, 2012 ) Victoria, Australia -- The Socialist government of France did not budge as calls from the business sector asked it to slash some labor charges in order to boost competitiveness, saying that it would negatively affect consumers.
An open letter published on Sunday showed that executives from 90 of France’s largest companies called for President Hollande to cut the payroll tax by 30 billion over two years. The move is in order to boost competitiveness, which is to be unveiled by the government in the coming weeks.
The AFEP association of large businesses said in a letter that the government should finance the cut by raising the VAT to 21% from 19.6% and cutting state spending.
Finance Minister Pierre Moscovici told Europe 1 radio: "I don't think that will be possible ... because it would hurt the purchasing power of French consumers."
Hollande has been a challenger of German focus on strict austerity measures from the start of his appointment as President.
Unemployment is at a 13-year high in France, and he has promised to give a boost to the sputtering manufacturing sector in the country.
"We are going to work on things which are not the cost of labor, such as innovation," Moscovici said. "We are also going to work on the cost of labor but not as AFEP requests by massively increasing ... VAT."
France holds some of the world’s highest labor charges to finance its welfare state, and business leaders blame those hefty costs for placing them in a disadvantageous position when it comes to international trade.
The letter by the AFEP pressed hard for the government as a preemptive strike against the report to be released by the government. The government is due to outline a plan within the following days, but is amendment in that it will not accept the recommendations.
Budget Minister Jerome Cahuzac stated that the government is focused on long-term measures.
"Competitivity cannot be reduced just to price competitiveness," he told France Info, adding that other crucial factors included research and innovation, aid to exporters, closer dialogue between unions and employers to improve the flexibility of the labor market, and improved training.
"Next year, a plan to improve competitiveness will be put into action which will put emphasis on non-price competitiveness because we have a considerable delay compared to Germany," he said, excluding any shift in labor charges onto VAT.
"We have ruled out a competitiveness shock," he said, adding that the government was targeting a more gradual transition, like the reforms undertaken by Chancellor Gerhard Schroeder in the early 2000s in Germany, which took a decade to bear fruit.
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