French PM prods firms over slow takeup of tax credits

Thu Apr 18, 2013 5:18pm BST

* Business confidence at crisis levels despite tax credit

* Firms finding scheme too complicated, doubt benefits

* PM seeks to dispel climate of mistrust among entrepreneurs

By Leigh Thomas

PARIS, April 18 (Reuters) - The French government conceded on Thursday that businesses have been slow to tap a tax scheme billed as helping them compete for orders, create jobs and revive the stalled economy.

Socialist President Francois Hollande has promised to reverse the country's steady loss of business to foreign competitors by bringing down labour costs, which have grown faster than the euro zone average over the last decade.

The government hoped a tax credit scheme launched in November would eventually save companies 20 billion euros ($26 billion) in wage costs annually, creating 300,000 jobs over five years and boosting profit margins that are currently the lowest in the currency bloc.

But six months after the plan was unveiled, Prime Minister Jean-Marc Ayrault lamented that many companies still seemed unfamiliar with it.

"It's not yet used widely enough," Ayrault told journalists, following a review of progress in rolling out the package, adding: "When it is used, it is very effective."

France's feeble economy is thwarting efforts to obey euro zone debt rules while driving unemployment to a 13-year high of 10.6 percent, putting Hollande under conflicting pressure from his European Union peers and from disillusioned voters.

The "competitiveness pact" has done little to keep business confidence from plummeting to levels not seen since early 2009, when companies were reeling from the global financial crisis.

Any company can apply for the tax credit scheme, which is determined by the size of their wage bill and effectively cuts labour costs by a few percent, enabling them to invest and create jobs.

Ayrault brushed aside the idea, voiced by some business consultants dealing with the process, that small firms can find the application procedure for seeking tax credits too complicated.

CLIMATE OF MISTRUST

The scheme offers firms a tax credit equal to 4 percent of their wage bill on salaries up to 2.5 times the minimum wage. The credit will rise next year to six percent of the wage bill.

Although the programme will not come into full effect until 2014, it is being made available early to small and mid-sized companies through state-backed advances signed with the public investment bank BPI and traditional commercial banks.

Though the scheme is meant to benefit small and mid-sized firms the most, 81 percent of the heads of such firms do not expect it to affect their business, a TNS Sofres poll shows.

Some 430 million euros in advances have been extended or approved so far and government officials say the pace is picking up quickly enough to meet a target of 2 billion by mid year.

The tax credits have done little to corporate belief that s Hollande's government is anti-business. Hollande imposed tax hikes early in his mandate and more are likely next year.

Eager to recover business' trust, Ayrault insisted: "My message to the risk-takers is that the government supports them and will support them."

He said the government plans to use 1.5 billion euros in household savings placed in state-regulated accounts over five year to help finance small and mid-sized firms via injections of capital, including 200 million euros in listed firms this year.

Louis Gallois, a former chief of aerospace group EADS and author of a competitiveness audit the government based its reforms on, said the important thing was to persevere.

"This is not going to be done in a day, it will take time," he said on RTL radio. "There are no miracle solutions." ($1 = 0.7643 euros) (Reporting by Leigh Thomas; Editing by Catherine Bremer/Ruth Pitchford)

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