On 3 January, France’s President Nicolas Sarkozy said his country will soon see an increase to the national rate of value added tax and a reduction to the mandatory social security contributions paid by employers.
The VAT rate increase is aimed at raising extra revenues which will be used to fund Frances’ troubled social security system, and the extra surplus will allow the French government to reduce the rate of employers’ payroll contributions. In a speech given in Paris, Sarkozy said that the changes will work in unison and boost the country’s economic production, increase the employment rate, and lower labour costs.
The current VAT rate in France is 19.6%, and the standard rate for social security contribution is 8%. Sarkozy said the changes should be approved by April 2012.
With less than four months to go to presidential elections, Sarkozy is seeking ways to reduce labour costs, stem rising unemployment and boost growth without hurting consumer spending and driving the country further into the red.
He plans to meet with labour and business leaders on 18 January to discuss ways of cutting the cost of labour by reducing the role of social charges on salaries in paying for France’s welfare state. French Finance Minister Francois Baroin said the government hasn’t decided how to cut labour costs. “The VAT raise is an option, but we cannot exclude others,” France Info radio quoted him as saying. “There is a French weakness and it’s labour costs. So we must imagine measures to lower them, that’s the political project.
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