Hollande rethinks French business policy

Is France becoming a pariah state for trade? That has been the fear from businesses since François Hollande rode into power on headlines of enormous tax hikes in May 2012.

Critics have latched onto the President’s infamous 75 per cent top rate of tax in particular, with even usually measured commentators sounding alarmed. “The situation is very serious. Some business leaders are in a state of quasi-panic,” said Laurence Parisot, head of employers’ group MEDEF.

Hollande’s ‘anti-business agenda’ makes a good story, if only it weren’t based on conjecture instead of an examination of his government’s actual policies for trade and investment. For all the media storm around the 75 per cent tax policy, Mr Hollande’s view of personal taxation is different from his attitude to business tax.

“Competitiveness shock”

At the start of November, the entrepreneur Louis Gallois set out a 22-point plan to stimulate growth in the French economy. In the report, commissioned by Mr Hollande, the former head of airbus manufacturer, EADS, said there was a clear need to loosen France’s famously tight grips of regulation and taxation. After the President unveiled what he called the “harshest budget in 30 years,” Mr Gallois called for a “competitiveness shock” to benefit businesses.

Mr Hollande is said to prefer a slow tinkering to a shock. He won’t, for example, be reforming France’s 35-hour working week. But he is taking measures to make France a cheaper place to do business, even if that means backtracking on earlier pledges.

Tax breaks for business

In response to Mr Gallois’ report, Prime Minister Jean-Marc Ayrault has unveiled £16bn of tax breaks for businesses. Acknowledging that it had become prohibitively expensive for many companies to employ workers in France, the government will cut the payroll tax in the hope of bringing the country’s unemployment below 10 per cent and kick-start growth.

“It’s a long way from an economic revolution,” said the Wall Street Journal. “But when France’s socialist President acknowledges that the state is holding back job creation, it’s a step in the right direction.”

In October, the President also conceded to businesses by reversing his position on capital gains taxes. After an online protest by young entrepreneurs, mostly from web and digital start-ups, the government U-turned on its plan to tax capital gains on the same scale as income. The ‘Pigeon’ campaign successfully argued that it would disincentive young entrepreneurs to start new businesses under Hollande’s plan that they give 58 per cent back to the state if they decided to sell.

Decades of investment

Despite the negative headlines, there are positive signs for those companies seeking to maintain or build strong trade links with France. Although the recovery has been hit by the financial downturn, France came into the crisis much stronger than most in the Eurozone. Investment in education, training and infrastructure during the boom years make it a highly developed market. Contrary to the UK tabloid stereotype of lazy workers who strike for fun, Britain’s fourth largest export market has the second most productive workforce in the Eurozone.

In doing business in France, foreign businesses enter into a trade-off with the French economic model. Skilled workers and sophisticated consumers are open in exchange for tight regulations, higher taxes and competition against subsidised domestic goods.

As with his predecessors, Mr Hollande and the French people continue to drive a hard bargain. But it is always better to read beyond the headlines to see if France really is open for business.

The statistics in this article came from UKTI and GlobalTrade.net