* French shadow economy seen above 11 pct of GDP in 2014
* Taxes push domestic services into cash market
* Trend fuels growth of peer-to-peer job sites
By Nicholas Vinocur
PARIS, Jan 28 French handyman Bruno works
full-time doing repair work on homes around Paris. But he says
the real reward comes after all paperwork has been signed and
customers ask for more work - off the books.
"The client and I are in the same position: we both need to
save money, so cash works for everyone," said Bruno, 27, who
asked not to be identified because of the tax-dodging that is
helping to swell his monthly wages by 25 to 50 percent.
Working for cash in hand is commonplace in many countries,
including some of France's euro zone neighbours.
Now the French are starting to catch up, undermining
President Francois Hollande's efforts to boost official
employment numbers and threatening the tax receipts he needs to
bring the public deficit within European Union limits.
A cultural preference for using cheques over cash and
France's highly-developed tax collection system, employing
115,000 staff, have kept its undeclared economy less developed
than those of some of its neighbours.
But rises in value-added taxes and the scrapping of
subsidies for services ranging from baby-sitting to gardening
have spurred the first expansion in the 'shadow' part of
France's economy for more than a decade.
Friedrich Schneider, shadow economy specialist at Austria's
Linz University, said such activity in France last year amounted
to a further 10.2 percent of output - compared with 21 percent
in Italy and 19 percent in Spain.
Now Schneider, one of the world's most widely-cited experts
on shadow economies, forecasts the French figure will rise to
11.4 percent in 2014. He gauges economies' "invisible" output
using clues such as total cash demand.
In a French survey by the Markit Audit pollster in November,
one in three people admitted to having worked off the books -
against just 13 percent in 2008.
In domestic service alone, consultancy Oliver Wyman
estimates that 41,000 jobs moved from the formal to the informal
economy between 2010 and 2012, meaning shadow labour accounted
for about 35 percent of the sector in 2012 and will hit 46
percent by 2016 if no action is taken.
Hollande's government has acknowledged a need to reduce
labour charges on companies, but only by the end of his mandate
RUSH TO CASH
There is a ready pool of job-seekers. The unemployment rate
is 11 percent, four of every five new hires last year were on
vulnerable short-term contracts and nearly a quarter of people
aged 18 to 25 are out of work.
VAT rises on household services - from 5.5 to 7 percent in
2011, then to 10 percent this January and up to 19.6 percent for
some services - have raised temptation, too.
The introduction in 1993 of a system of French state
subsidies for domestic work had encouraged workers and clients
to declare such labour.
But the scrapping of such discounted rates from January last
year has prompted many households to declare fewer hours or
switch to full cash payment.
"Ill-thought-out taxes, from VAT sales tax to heavier social
fees, push people toward the informal economy," wrote
Samuel-Frederic Serviere of the IFRAP think tank last year, as
data showed France falling 2.7 billion euros short of its
expected tax take.
"There is much at stake in terms of revenue for the tax
system and social charges," he added.
France remains Europe's champion of cheques, a form of
payment easily traceable by tax authorities, with 3.3 billion
issued in 2009, according to the Bank of France. But cheque
usage has been dropping 4 percent per year since 2002.
Providers of services like house cleaning and tutoring blame
Hollande for spurring a rush to cash.
His government does not see the issue as a priority.
National statistics office INSEE, which uses a different
methodology to that of Schneider, says the shadow economy is
worth only 3.7 percent of Gross Domestic Product.
Charles Dauman, CEO of the Shiva house cleaning firm, told
Reuters that overall demand for domestic services had shrunk 11
percent since 2011 as Hollande and the previous government of
Nicolas Sarkozy rolled back incentives.
"These measures are completely counter-productive," he said.
"We are providing stable jobs in a difficult economy ... The
government is making it harder for middle-class families to pay
for this sort of service legally."
Dauman is also critical of job web sites like Frizbiz.fr,
Youpijob and Leboncoin.fr.
Auguste Verlinde, who launched Frizbiz last year, rejects
any suggestion that his site encourages illegal work.
"We rely on the good faith of people who hire individual
service-providers to declare their revenue, and we encourage
them to do so," he said, noting the web site allows users to
download a tax declaration form.
Bertrand Tournier, co-founder of peer-to-peer website
Youpijob.fr, says it provides a form for people to declare their
work. "I'm here to help people find work," he said.
"Can I guarantee that zero percent is done off the books?
No, but we should look at the larger problem, which is why they
can't find work."