France shifts taxes to jump-start industry

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PARIS, Nov. 7 (UPI) -- The French government said it would reduce its payroll tax paid by businesses to stimulate industrial growth.

The cuts would total 20 billion euros, or $25.6 billion, over three years.

The socialist government led by President Francois Hollande said it would make up the difference in revenue with a sales taxes increase and spending cuts that have yet to be announced, The New York Times reported Wednesday.

French ministers agreed to the tax cuts in response to a report by Louis Gallois, the former chief executive officer of European Aeronautic Defense and Space, that also recommended a payroll tax reduction for employees, which the government rejected.

The report recommended a "competitiveness shock" to the French economy, which has shed 750,000 industrial jobs in the past decade, the Times reported.

The deal breaks Prime Minister Jean-Marc Ayrault's pledge, which he made in September, not to raise sales taxes.

The sales tax, called a value-added tax in Europe, is considered harder on the poor than the rich, because the poor spend a larger portion of their income.

To make up some of the difference, the sales tax is set up in three separate categories.

The sales tax for food and other basic needs will drop from 5.5 percent to 5 percent, but the sales tax for most items will rise from 19.6 percent to 20 percent in January 2014.

There is also an "intermediate" value added tax in France that covers items such as home repairs and restaurant meals. That tax will rise from 7 percent to 10 percent.