— But Concedes That Growth Will Be Weaker Than Expected

PARIS (MNI) – French President Francois Hollande pledged Sunday to
accelerate labor market reforms and pursue fiscal consolidation with the
aim of turning the country around in two year’s time.

Speaking on prime-time television, Hollande acknowledged that the
economy is hurting, predicting growth this year of “hardly more than
zero” and next year “no doubt 0.8%” — revised down from 1.2% expected
previously. “I hope we will do better,” he added quickly. Most analysts,
however, now fear that even 0.8% will be hard to reach.

Facing growing doubts about his government’s capacity to overcome
the economic crisis and personal popularity ratings below 50% after only
four months in office, the president said, “I hear the impatience” and
attempted to reassure viewers: “I know where I am going.”

Along with government programs to subsidize jobs for disadvantaged
youth and incentives for business to retain senior employees to train
new hires, Hollande vowed that two major reforms would be launched at
the start of next year to boost the competitiveness of domestic
producers and to provide employees more security while allowing firms
greater flexibility on staffing levels to cope with fluctuations in
demand.

Next month the government will propose an alternative financing of
social programs, relying less on payroll taxes that increase labor costs
and more on other taxes, he said, without offering details. The
broad-based CSG tax on earnings and investment returns is one
alternative, but not the only one, he reiterated.

Unions and employers will be given until the end of this year to
come up with a “win-win” accord for the second labor market reform,
Hollande said.

Given the high risk of a stalemate, he said the government would
“assume its responsibilities” if this “historical compromise” is not
reached through negotiation. Among the options the government would
consider, he mentioned subsided part-time employment as an alternative
to downsizing and more attention to retraining for laid-off workers.

Once again, Hollande underscored the necessity of cutting the
public deficit to 3% of GDP next year in order to preserve low borrowing
costs, but admitted there was no guarantee this situation would continue
forever.

Besides the E7 billion in tax hikes voted this summer, E30 billion
additional savings must be found next year — a projection that was not
altered despite the downward revision to growth forecasts. The burden
will be shared equally among firms, households and the government, he
said.

The extra burden on business will fall primarily on large companies
in order to favor small firms, especially exporters, Hollande said.
Dividend taxes will be hiked to encourage companies to channel more
profits toward investment, and tax shelters will be pared, notably
tax-free overtime for firms with more than 20 employees.

The E10 billion in new taxes on households will fall mainly on high
earners, with a new income tax rate of 45% for household revenues over
E150,000 per year and an “exceptional” 75% tax on earnings over E1
million, which could be retired after two years. Employment revenues and
investment earnings will be taxed at the same rate and there will be no
inflation adjustment next year except for the two lowest tax brackets,
he said.

For the government, the E10 billion in savings will be found in all
areas except education, the police and the judicial system, Hollande
reiterated. Public employment and total outlays will be frozen: “Not a
single euro more!”

Hollande said he would personally inform the country regularly on
progress toward his goals and gave the impression that in two year’s
time the government could turn its attention to the creation of a
“society of solidarity,” while at the same time confirming his promise
to eliminate the public deficit by the end of his five-year mandate.

–Paris newsroom +331 4271 5540; Email: ssandelius@mni-news.com

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