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Economic policy/France’s attractiveness

Published on January 16, 2014
Statements by M. François Hollande, President of the Republic, at the press conference (excerpts)

Paris, January 14, 2014

(…)

This is the third press conference since the beginning of my five-year term. On 31 December, I addressed my New Year greetings to the French people, and I sketched out a roadmap. It is a simple one: getting French society moving.

For I am convinced, deeply convinced, that if France hopes to maintain its global influence, if France intends to influence the direction of Europe and if France wants to remain master of its own destiny, it must, must recover its economic strength. For it has lost some of that strength in the last decade.

First, there was a long, deep crisis, doubtless underestimated, including by ourselves. And then there was a headlong rush, which lasted too long and swelled deficits: deficits in the public accounts and a trade deficit.

This has been stopped. It is the action of Jean-Marc Ayrault’s government in the last 18 months that has brought that about.

The first results are here. They are fragile – too fragile. Yes, youth unemployment has fallen in the last six months. Yes, unemployment has stabilized and trends are emerging. But we haven’t yet won the battle for employment.

So what should we do? This is what I announced to the French people.
Begin a battle, and a new stage. This is not about changing course. It is about going faster and further, accelerating and deepening.

In 2014, the challenge is not simply for France to return to growth – it is emerging. It is for that growth to be as vigorous as possible. We can only achieve that with the mobilization of all parties, including businesses, without which there can be no long-term job creation.

This is why I proposed the Responsibility Pact.

The principle is simple: reducing the burdens on businesses, reducing constraints on their activities; and, in return, enabling more recruitment and greater social dialogue.

Why this pact? Because the time has come to solve France’s main problem: its production. Yes, its production. We need to produce more, and better. Action is therefore needed on supply. Yes, supply! This is not contradictory with demand. Supply even creates demand.
This pact has four main dimensions.

The first is continuing to reduce the cost of labour. We began with the programme I presented in November: the competitiveness and employment tax credit (CICE), which will apply this year, 2014. It involves a 4% reduction in payroll costs, and 6% next year.

I am setting a new goal: that by 2017, family allowance contributions – for both businesses and freelance workers – will be finished. That represents €30 billion of payroll charges. The discussions will therefore look at the future of the CICE – how it can fit into this process – and how we can fund social protection.

This is the condition for businesses to recover their margins. Not just to please them, or give them some kind of present. I think you all know that what we call businesses’ mark-up, which allows them to finance investments, was, in 2012, the lowest it has ever been.

The second dimension is giving businesses visibility. Investment is impossible if the framework is unclear or if the rules change. We will therefore set a deadline – 2017 – with a trajectory of taxes and social security contributions for businesses. My wish is for modernization of corporate taxation and a reduction in the number of taxes – which sometimes cost more to collect than they contribute – with two requirements: investment and employment.

A first act will begin with the 2015 budget.

The third dimension of the responsibility pact is simplification. The number of regulations needs to be reduced, as I announced with the choc de simplification (1) – which has begun – and to go even further, reducing sometimes useless or expensive procedures and facilitating decision-making. This is a key component for restoring confidence. I have entrusted the task of going all the way, leading a simplification council, to a deputy, Thierry Mandon, and a business leader, Guillaume Poitrinal – an alliance that may seem surprising. They will review the “10 key steps” in the life of a business, from creation to sale, including the opening of factories, access to public procurement, recruitment formalities, accounting obligations, administrative and tax inspections, etc. – everything. Not to reduce protections, particularly social, health and environmental protections, but to simplify and facilitate. And this movement will not stop until the end of my five-year term.

The fourth dimension is what businesses do in return.

This must be defined at national level, and adapted according to professional branches. It will involve numerical targets for recruitment, employment of young people and seniors, the quality of work, training and the opening of negotiations on pay and the modernization of social dialogue. An observatory will be set up to monitor these actions and Parliament will be involved.

That’s what the Responsibility Pact is about. It is a great social compromise – probably the greatest that has been proposed in our country in decades. It involves all stakeholders: the state, local government and, or course, the employers and unions.

My method is negotiation. This method has proven its worth since the talks on inter-generational contracts (2), then in the agreement on job security, the pensions reform conducted by the Prime Minister, and again, recently, concerning vocational training. This is the right method.

The Responsibility Pact is an opportunity that everyone should seize.

Not simply in their own interest, but for France. All professional organizations, all the political families, in a way, and all territories are concerned. The Responsibility Pact is a matter of rallying together for employment. And I expect everyone, once again, as the name implies, to shoulder their responsibilities.

But there is no time to lose. No intermediary election should paralyse us. France now needs to bounce back to get moving again. This means a particularly dense, tight schedule.

On 21 January, I will speak to all economic and employment players here, to officially inaugurate the pact and its different dimensions. The employers and unions will be received in the following days by the Prime Minister and the ministers concerned. By the end of January, the Conference on Corporate Taxation will be set up by Jean-Marc Ayrault.
The High Council on Financing Social Protection, which is itself to consider the evolution of the method of financing, will publish a first report at the end of February. Lastly, the government will launch a second package of simplification measures in April.

All these discussions will continue and will conclude during the Great Social Conference in the spring. A document will formalize the pact’s commitments and the procedures for monitoring the actions businesses carry out in return. The government will stake its responsibility before the National Assembly on this text.

A public finance and social spending estimates bill for the 2015-2017 period will be voted on in the autumn. It will be in coherence with what is decided in the framework of the Responsibility Pact, as well as with the overhauling of household taxation, which has already been begun by the Prime Minister, as all that goes together.

During my New Year greetings on 31 December, I also told the French people that I wished to reduce public spending. Why? Not as a goal in itself. More than anyone else, I am committed to maintaining public services and our social model.

So why does public spending have to be reduced? Because it is vital to reduce public deficits. Because it is a requirement for any tax cut.
Because it is needed for the implementation of the Responsibility Pact, which must not lead to transferring costs from businesses to households. I will not accept that, given purchasing power today.
So how can we go about it? I think it is possible to make savings, many savings, while preserving our social model. Other countries have done so, including countries with this social tradition – I’m thinking of the countries of northern Europe in particular. They have come out of it more dynamic and more mutually supportive. We can be confident in this process because it has already begun.

I would like to recall that public spending was controlled in 2013, with the state spending less than was voted for by Parliament. Health insurance spending even was lower than was planned. This year, in 2014, we will make €15 billion of savings.

So, what still needs to be done?

Between 2015 and 2017, we need to save at least €50 billion more. That’s a lot – indeed, it has never been done before. It is, however, the equivalent, in real terms, of 4% of all our collective spending – only 4%. But it still needs to be done. To achieve that, I have decided on a new method.

Rather than making blind budget cuts – as has happened in the past – which are indiscriminate and unfair, affecting everyone, I propose to implement structural reforms, to redefine the major roles of the state, and to review our redistribution mechanisms to make them fairer, more ecological and more effective.

I will create therefore a Strategic Spending Council to advise me. It will meet every month to assess public policies.

The schedule of the budget procedure – sorry for going into detail – will begin today. In April, the Prime Minister will send letters of instruction to the government ministers, setting down the amount of spending and determining not only the volume of savings to be made in 2015, but also the volume of savings to be made until 2017.

All spending, all policies and all structures will be concerned. The state will set the example; that is its role. But it cannot be alone in this process, as it represents only a little more than a third of public spending. The rest is the responsibility of local government and what is called social protection. (…)./.

(1) A series of measures aimed at simplifying administrative procedures, cutting red tape that is hindering business, and boosting growth.

(2) Allowing businesses with fewer than 300 employees a financial incentive if they recruit a young person, provided they pledge not to fire an older employee.

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