Government Makes Progress on Growth Plans at CESE

President François Hollande. Photo: flickr.com/jmayrault

President François Hollande.
Photo: flickr.com/jmayrault

From July 9, to July 10, François Hollande, the Prime Minister, members of the government, trade unions and employers met together at the Palace Iéna for the Economic, Social, and Environmental Council.  The aim according to Hollande was to “define a pact of trust and efficiency between the state, salaried employees, corporations and social partners” based on a “positive compromise” between all the actors that should ensure France overcomes the economic difficulties it currently faces.

The first thing on the agenda was the fact that France needs to be more competitive, especially regarding industry.  Various solutions have been proposed, among these Hollande’s generation contract and professional equality. However the most important key to increasing competitive advantage concerns labor cost which is incredibly high in France. This is why many economists of the Circle of Economists claim that decreasing the cost of labor in order to be more competitive is the answer to the question of increasing growth.

The high cost of labour in France is the result of various contributions that are deducted from the gross-pay by corporations in order to finance employees’ social protection: unemployment insurances, health insurances and retirements among those. These contributions currently represent 43.75% of gross-pay deductions and they are expected to rise in the future.

Therefore to reduce the labour cost, contributions by employers need to be decreased too, hence, other sources to fund social protection must be found.  In 2012, the UMP passed a law on a new VAT. This tax applies to everyone without distinction and at the same rate since it is applied to consumption goods. Its advantage is that italso taxed imported products. However the left promised to eliminate it, and to replace it with another measure.

The Parti Socialist (PS) is much more in favor of a General Social Contribution (GSC). Michel Rocard, Prime Minister from May 10th 1988 to May 15th 1991 under François Mitterand’s presidency, created this tax in 1990. It does not only apply to employers but also on every type of incomes: wages, unearned incomes, indemnities, benefits and so on. It has a broad tax base and different brackets within it, so many believe it is fairer than an increased VAT. Moreover it brings in more revenue than income tax, which is partly why Hollande wanted to fuse the two, so as to simplify and streamline taxes. Nevertheless an increase on the GSC means a drop in take-home pay and this is hard for employees to accept.

Though their points of view concerning the labor costs and competitiveness were different, Hollande has also reconnected with trade unions during this meeting, contrary to his predecessor, Nicolas Sarkozy. He advocates for the inscription in the Constitution of the “social dialogue” principle and recognised that the State cannot do everything without the help and the involvement of both trade unions and employers.

The conference has lead to various advances. In autumn, new negotiations on employment law will be held, and a bill concerning private corporation organization will be developed during the same period so as to control managers’ pay, as well as the place of salaried employees in the Salary Committee.

Furthermore it has been decided that the minimum wage will reformed to take into account growth. Finally a new reform on retirement is expected to be launched in Spring 2013. Hollande has promised that it was time for change, and it is indeed.

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