France on Tuesday unveiled a 20 billion-euro tax break for companies in a bid to address flagging competitiveness.
The move was approved by the government a day after a report called on the Socialist administration to slash payroll taxes by 30 billion euros (HK$295 billion) within two years.
The government signalled that easing a business tax burden that is considered a barrier to job creation would be financed by a combination of cuts in public spending and an increase in Value Added Tax (VAT).
France’s standard rate of VAT will rise from 19.6 to 20 per cent from January 1, 2014. An intermediate rate currently applied at 7.0 per cent will rise to 10 per cent at the same time. The minimum rate will be cut however from 5.5 to 5.0 per cent.
The government also announced plans to cut 10 billion euros from public spending in 2014-15 and said it would introduce new green taxes from 2016 which would boost the public coffers by three billion euros per year.
Unveiling the measures, Prime Minister Jean-Marc Ayrault said the government was adopting almost all of the “shock” measures recommended in a report drawn up by Louis Gallois, one of the country’s most prominent industrialists.
“The situation of the country calls for ambitious and courageous decisions,” Ayrault said. “France needs a new model.”