France Takes Stock Of Commission's Fiscal Advice
03 June 2013
Posted by: Author: Ulrika Lomas
Author: Ulrika Lomas
French Finance Minister Pierre Moscovici has recently taken note of the fiscal measures advocated for France by the European Commission, within the framework of its Country Specific Recommendations (CSRs).
The French Finance Minister underscored that most of the Commission's recommendations merely serve to endorse the current work and plans of the Government, notably the Government's competitiveness, growth, and employment pact and accompanying competitiveness tax credit (CICE), its plans to reform the labor market, professional training, and pensions, to support innovation, to simplify procedures for businesses, and to implement measures aimed at promoting and encouraging the recruitment of younger and older individuals in France.
Furthermore, Moscovici welcomed the Commission's decision to accord France a further two years in which to return the country's public deficit to below 3 percent of gross domestic product (GDP). According to the French Minister, the Commission has taken into account in its decision efforts already undertaken by the French Government in 2012 and 2013 to improve the structural deficit, as well as the risks of a further deterioration of the country's economy.
On the basis of its pessimistic economic forecast, the European Commission decided that it would be better to delay until 2015 plans to reduce the French deficit to below 3 percent, to avoid any adjustment that "would risk weighing excessively on growth."
Concluding, French Finance Minister Moscovici highlighted the Government's commitment to pursuing a "serious" fiscal strategy, at the right pace, and to continuing its reform agenda to ensure economic recovery and stronger growth.
In its CSR, the European Commission urged France to reinforce and to pursue its budgetary strategy in 2013. The Commission insisted that France should enhance the credibility of the adjustment by specifying by autumn 2013, and implementing, the necessary measures for the year 2014 and beyond to ensure a correction of the excessive deficit in a sustainable manner by 2015 at the latest. All windfall gains are to be used for deficit reduction, the Commission made clear.
The Commission recommended that France should take measures by the end of 2013 to bring the pension system into balance in a sustainable manner no later than 2020, for example by adapting indexation rules, further increasing the statutory retirement age and full-pension contribution period and reviewing special schemes, while avoiding an increase in employers' social contributions.
The Commission stressed that the Government should ensure that the CICE tax credit for competitiveness and employment reduces labor costs by the planned amount and that no other measure offsets its effect. It also advocated that further action be taken to lower the cost of labor, in particular through further measures to reduce employers' social security contributions
Finally, the Commission called on the Government to pursue efforts to simplify the tax system and improve its efficiency, while ensuring continuity of tax rules over time. It underlined the need to implement measures to remove the debt bias in corporate taxation and to step up efforts to reduce and streamline personal and corporate income tax expenditures, while reducing statutory rates. The Commission recommended that the reduced rates of value-added tax (VAT) be brought closer to the standard rate and that inefficient VAT rates be removed. Crucially, the Commission warned that further measures should be taken to shift the tax burden away from labor to environmental taxation or consumption.