France Pledges $25 Billion Tax Break to Businesses

By:  Brian Koenig
11/08/2012
       
France Pledges $25 Billion Tax Break to Businesses

To improve business competitiveness and revitalize the economy, France’s government has pledged $25 billion in tax credits to businesses.

To improve business competitiveness and revitalize the economy, France’s government has pledged $25 billion in tax credits to businesses in a plan to spark innovation and reduce unemployment in the nation’s writhing economy. The measure is part of a “competitiveness pact” with the private sector, but falls short of recommendations in a recent report recommending a “shock” to the French economy, which as shed 750,000 industrial jobs in the last 10 years.

Prime Minister Jean-Marc Ayrault claimed the economic plan, which contains a $638-million fund to bolster ailing small businesses, would put France “back at the heart of the world economy.” He added, “This new French model will consist of finding a way back to creating jobs and will no longer be financed by permanent deficits.”

Announced on Tuesday, the plan arrived a day after a government report — authored by Louis Gallois, former head of Airbus parent company EADS — affirmed that France’s stagnant economy requires a dramatic shock to remain globally competitive. However, while many hailed the measure, it fell short of the $38.2-billion jumpstart Gallois advocated in his report, raising concerns that the Socialist administration of President Francois Hollande is not doing enough to reignite the French economy. The Associated Press explained:

For example, the $20 billion tax credit is to be implemented over three years — with €10 billion available in 2013 and the rest split over the following two years. Gallois recommended in his report for the government that the breaks should happen over one or two years to have the maximum effect.

The measure also takes the form of an income tax credit, rather than a reduction in the social charges employers pay on salaries, as Gallois had suggested. The government argues that its method is designed to have immediate impact, while deferring payment until 2014 when next year's tax bill comes due. That, however, assumes that companies will start spending and hiring right away in anticipation of the credit.

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