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France/economy

Published on February 13, 2012
Excerpts from the communiqué issued following the Council of Ministers’ meeting

Paris, February 8, 2012

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Amended Finance Act for 2012

The Minister for the Economy, Finance and Industry and Minister for the Budget, Public Accounts and Administrative Reform, Government Spokesman, presented an amended Finance Act for 2012 ensuring that decisions taken by President Sarkozy on 18 January following the summit on the crisis will be implemented.

Building on its action over the past five years to support competitiveness and innovation, the government wishes to bridge the competitiveness gap in the French economy and particularly in industry. This gap results partly from an employment contribution level comparatively higher than those of our main partners.

This is why the government is proposing to lower the cost of employment by €13.2 billion. The family contribution, which stands at 5.4%, will be totally eliminated from salaries up to 2.1 times the minimum wage (€2,290 net), then partially from those up to 2.4 times the minimum wage (€2,620 net). Likewise, the normal Value Added Tax rate will be increased by 1.6 percentage points – to the European average – and the general welfare contribution on non-wage income increased by 2 points. This carefully balanced reform will come into force on 1 October 2012.

It will benefit those sectors most exposed to international competition (80% of jobs in the manufacturing sector and 97% of jobs in agriculture) and will help restore competitiveness to French products without creating inflationary pressure. In so doing, the government is fighting against relocations and helping create some 100,000 jobs.

Also in order to strengthen the competitiveness, and facilitate the financing, of French industry, the bill provides for €1 billion of capital for the new industry bank. Moreover – in line with the decisions taken after the 18 January summit – it supports employment, particularly for young people, through measures aimed at developing apprenticeships, increasing the quota of apprentices for companies with more than 250 employees (from 4% to 5% by 2015) and the penalties faced by those failing to meet this requirement.

The bill also proposes the introduction of a financial transaction tax, aimed at ensuring fair participation by the financial sector in the effort to put the public finances back on a sound footing. This contribution of €1.1 billion in a full year prefigures the introduction of a Europe-wide mechanism.

It also provides for a €6.5 billion payment representing the first tranche of France’s share of capital in the new European Stability Mechanism, in accordance with the implementation of the treaty, which has at the same time been submitted to parliament for ratification.

Finally, the Council of Ministers is stepping up sanctions against fraudsters by means of three flagship measures: the creation of a proportional fine of 5% on undeclared financial assets held abroad, an increase in fines for tax fraud and the creation of specific criminal sanctions for fraud involving tax havens.

As it did throughout 2011, the government is adjusting its growth forecast to adapt to developments in the economic situation and take account of the slowdown observed in the last quarter of 2011. It has been revised to 0.5%, which has an automatic impact of €5 billion on the public sector deficit forecast, mainly because of the revision of receipts from Value Added Tax, corporation tax, social contributions and [the revision of] unemployment insurance costs. This impact is fully compensated for by the impact on 2012 of a better-than-expected 2011 deficit, the government’s good results concerning anti tax fraud, the introduction of the financial transaction tax and net cancellation of €1.2 billion in appropriations out of the €6 billion placed in reserve.

So the sacrosanct public deficit target of 4.5% [of GDP] for 2012 has been confirmed. Moreover – leaving aside the stake in the European Stability Mechanism, which has no impact on the public accounts – the state’s budget deficit now stands at €78.4 billion, which is €0.3 billion below [the figure stated in] the initial Finance Act. (…)./.

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