French President Francois Hollande pledged Tuesday to slash 50 billion euros in public spending and abolish 30 billion euros worth of payroll taxes by 2017, as he tries to encourage hiring and clean up public finances.
He came under immediate criticism from fellow Socialists for being too friendly to big business. And the spending cuts contrast with the anti-austerity platform that Hollande rode to the presidency in 2012, as neighboring Spain and Italy reeled from painful budget-squeezing measures.
“If France wants to keep its influence in the world, if France wants to weigh on the course of Europe, if it wants to keep control of its destiny, then it should imperatively restore its economic force,” Hollande said.
A year-and-a-half into his term, Hollande is deeply unpopular for his failure to lower 11 percent unemployment and improve France’s stagnant economy. And France’s refusal to undertake dramatic reforms has left public debt at 95 percent of gross domestic product and deficit levels above EU limits.
Hollande laid out a broad economic strategy Tuesday, which largely involved going “faster, further” with modest reforms his government has already taken — and notably, reducing France’s notoriously high labor costs.
The economy, meanwhile, suffered two recessions in recent years, and growth is forecast at an anemic 0.2 percent in 2013.
Hollande said he’s “entering into battle” to fix the economy, and promised to cut 50 billion euros ($68 billion) in public spending over the years 2015-2017.
That’s about 4 percent of overall public spending. This year’s budget includes 14.8 billion euros in spending cuts and 379.9 billion euros in overall spending.
Hollande also announced the end of a so-called family payroll tax, one of many taxes companies and employees pay on salaries. French employers pay the highest payroll taxes in the European Union.
Hollande said that cut, to happen by 2017, would reduce the burden on companies and independent workers by 30 billion euros.
The family payroll tax is used to help finance subsidies to families. Hollande didn’t say where the money for these subsidies would come from, but said the burden wouldn’t fall on families. He insisted that the cuts do not mean France has to give up its social model.
A recent, two-day “boss-napping” of managers at a Goodyear tire plant in northern France illustrated why multinationals are wary of investing. The French public often views business as the enemy, accusing big companies of paying executives too much, sending jobs abroad and hiding profits to avoid taxes.
France never faced the collapsing job market, investor panic and soaring borrowing rates that neighbors Spain and Italy did during the worst of Europe’s debt crises. However, that means that France hasn’t made any radical labor-market reforms and deep spending cuts that economists say are necessary to get the economy growing again.