Hollande likely to shrug off "shock therapy" review

Mon Nov 5, 2012 4:57am EST
 
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By Catherine Bremer and Emmanuel Jarry

PARIS (Reuters) - The French government is expected to largely brush aside a review on Monday that will prescribe slashing payroll taxes and loosening labor laws to reverse a long slide in competitiveness that has eaten away at exports and bled factory jobs.

Any expectations that the widely-leaked government-commissioned report by industrialist Louis Gallois could spur big reforms have been snuffed out in advance by the Socialist government which has ruled out "shock therapy" proposals.

Industry leaders, who say shouldering some of the highest labor charges in the world puts them at a disadvantage against foreign rivals and is the cause of a ballooning trade deficit, have joined forces to demand a radical shake-up.

The Gallois report, to be released to the media on Monday afternoon, will suggest hacking 30 billion euros ($38.54 billion) off payroll contributions over two to three years and balancing that with public spending cuts and higher consumption taxes, according to leaks in French media.

But President Francois Hollande's aides say shifting more of the tax burden onto households is out of the question at a time when the country is grappling with its toughest austerity budget in years in order to meet deficit-cutting goals.

"This report is a contribution. It's the government that governs," cautioned Social Economy Minister Benoit Hamon.

Hemmed in by his pledge to cut the 2013 deficit to 3 percent of economic output from 4.5 percent this year, Hollande has limited his language to promising a "competitiveness pact" to put French industry on the road to recovery.

"A shock causes trauma whereas a pact reassures," Finance Minister Pierre Moscovici explained last week.   Continued...

 
France's President Francois Hollande leaves after a meeting at the OECD headquarters in Paris October 29, 2012. REUTERS/Bertrand Langlois/Pool