French business taxes - down but not out

Boxing

If you’re in business in France, last year was pretty bleak and the forecast for 2014 looked no better, if anything worse. When paying 45% National Insurance/social security contributions, Corporation Tax at 33%, higher VAT rates … it’s hard to just survive let alone actually make money.

Imagine the surprise, then, in early 2014 to hear President Hollande making overtures to the business sector. Was this the “Gayet effect”? A new love softening the edges of the fiercely anti-business socialist government? The Pacte de responsabilité (PDR) announced in January offered a 5% drop in social security contributions against the rather woolly notion that this decrease would necessarily feed through to create jobs. When your business is “on the ropes” you probably first want to get to the middle of the ring, clear your head, catch your breath, and only then, possibly, think about creating new jobs, or – to extend the boxing analogy – fly across the ring and knock your opponent down for the count!

The PDR actually gave us a little hope. Five percent? But was this the existing 3% on the table for medium-sized businesses (via the Contrat de competitivité) plus 2%, or was it a totally new, stand alone 5% applicable to all businesses, large and small?

As usual with the current government, we enter the Fudge Zone. No one really knows the answer, and – as it was quickly pointed out – this still leaves businesses in France some 70% less competitive than their German counterparts. There’s still a long way to go.

And then, bien sûr, the unions step in, complaining that Hollande has betrayed his socialist heritage and turned overnight into a rampant capitalist (a Social Democrat, some commentators said, à la Tony Blair). On the other side, the employers’ union, MEDEF, added that they wouldn’t sign up for a “contract” binding them to create new jobs.

And in late February the European Commission’s forecast for France predicted a 4% level of national debt to GDP in 2015, whereas the French government had staked their reputation on bringing it down to 3%; indeed, the European Commission had already given them a 2-year extension in 2013 to resolve the issue.

Unemployment keeps rising (meaning more benefits going out), fiscal revenue has dropped off (trop d’impôt tue l’impôt), and where will the government make savings in the public sector amounting to €50 billion? Making fonctionnaires redundant or putting a cap on their final salary pension schemes? Unlikely. You need growth to fuel the economy, more than the 1% forecasted this year by the European Commission or the 1.7% for 2015. And to achieve growth you need to be competitive.

Le Figaro’s February 26th editorial referred to the “immobilisme maladif” of the French government. No literal translation needed, while on January 18th, the headlines of the Economist read “le nouveau Hollande” shortly after the announcement of the PDR. But – like his love life – those first amorous excursions on the back of a scooter have been replaced by the sedate and obscure “stop/start” movements of a giant ocean liner, obstinately difficult to stop and turnaround.