March 11, 2013 / 6:56 PM / in 5 years

France launches tax credits to claw back competitiveness

CLERMONT-FERRAND, France, March 11 (Reuters) - France launched a 20 billion euro ($26 billion) business tax credit scheme on Monday to boost waning competitiveness in the euro zone’s second biggest economy.

Finance Minister Pierre Moscovici urged small- and medium-sized firms, which are struggling the most in the current downturn, to quickly take advantage of the programme as the first companies officially signed up in his presence in the central city of Clermont-Ferrand.

The scheme aims to help companies reduce their labour costs by giving them a tax credit equal to six percent of their wage bill on salaries going up to 2.5 times the minimum wage.

Although the programme does not take full effect until 2014, it is being made available to small and mid-sized companies through state-backed advances signed with the public investment bank and traditional commercial banks. For this year, tax credits can only reach up to 4 percent of a firm’s wage bill.

With many small companies feeling their cashflows pinched, Moscovici said: “It’s a very simple, quick and efficient instrument that was designed to meet firms’ needs.”

The programme aims to reduce the cost of employing people in order to help regain lost competitiveness on international markets, which has left France with a yawning trade deficit and surging unemployment.

France’s 2-trillion-euro economy is on the brink of its third recession since the 2008-2009 financial crisis after having contracted 0.3 percent in the final quarter of 2012.

President Francois Hollande has seen his approval ratings drop to record lows after only 10 months in office with voters growing increasingly frustrated that his promises to turn around the economy are falling flat.

The jobless rate hit its highest rate since 1999 in the fourth quarter of last year at 10.6 percent and jobless claims are likely to soon make a new record high amid waves of plant closures and industrial layoffs.

“Reducing our welfare contributions is vital. The last months have not been good,” said Gregoire Guiraud, head of textile firm Cheynet, one of the first two firms to sign up for bank advances.

Officially up and running only since Feb. 22, the public investment bank has so far received 350 requests.

The cost of the tax credits to the state coffers is to be financed in part by an increase in the value added sales tax starting next January and by 10 billion euros in extra savings that the government has yet to detail. ($1 = 0.7684 euros) (Writing by Leigh Thomas; editing by Ron Askew)

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