PARIS, Nov 6: France on Tuesday unveiled 20 billion euros in tax breaks for businesses, bowing to pressure to address the flagging competitiveness deemed to be at the heart of the country’s economic malaise.The tax breaks will take the form of credits applied to company earnings for three years from next year and will affect public finances from 2014-16. Designed to offset the cost to companies of France’s high payroll taxes, they will be financed by a combination of cuts in public spending and increases in sales taxes (VAT).

Prime Minister Jean-Marc Ayrault said the government had decided to implement virtually all of the “shock” measures recommended in a report drawn up by industrialist Louis Gallois and presented to the Socialist administration on Monday.

“The situation of the country calls for ambitious and courageous decisions,” Ayrault said.

“France needs a new model that will put it back at the centre of the world economy.” Despite his grim depiction of the current situation, the premier insisted that the administration was capable of emulating countries like Sweden by reforming its economy without dismantling its social welfare system.

“France is not condemned to an inevitable spiral of decline but a national shock is essential if we are to retake control of our destiny,” Ayrault said. Gallois, the former head of the aerospace giant EADS, had recommended that the tax burden on employers be eased by a reduction of 20bn euros in employers’ contributions to the payroll taxes which finance France’s generous social security system and one of the best health services in the world.

He told AFP the package announced on Tuesday was “as good if not better,” for companies than what he had put forward. “The government has faced up to the problem of France’s competitiveness.”—AFP