France's Socialists put economic pickup ahead of reform plans
When the Socialists took power last May and immediately began raising corporate charges to pay for their ambitious reforms, businessmen were publicly skeptical.Skip to next paragraph
Subscribe Today to the Monitor
But in the past few months, with the French economy turning sour--inflation remaining over 14 percent, interest rates consequently higher, the franc falling to new lows, a growing trade deficit, and plunging investment figures--skepticism has evolved into outright confrontation.
''How can we invest when we are being strangled by charges?'' businessmen demand in an increasingly harsh tone.
Prime Minister Pierre Mauroy moved April 16 to assuage the concern, announcing a series of measures to ease the tax burden on French industry.
Corporate taxes are not to be raised as planned for two years, employers' social security contributions are to be frozen until July 1983, and the working week kept at 39 hours until 1984 instead of the planned 37. In return, the government hopes business picks up investment and gets the economy going again.
The measures represent a rightward turn for the socialists. By slowing down the reduction of the official workweek and the introduction of retirement at age 60 instead of 65, the Socialists are making economic growth a greater priority than social reform.
This change in priorities is also shown by the fact that consumers will be paying for much of the benefits given to business. To make up for the lost revenues from the 10 percent cut of corporate ''professional'' taxes, the value-added sales tax is being raised.
Mr. Mauroy argued, though, that this ''professional'' corporate tax acts as a particularly severe drag on investment, because it is based on the amount of a corporation's capital equipment and sizer of its payroll. He said he would soon propose to Parliament a bill to overhaul the tax's structure.
He added that the government was not totally turning its back on its social reforms. A 35-hour workweek remains its goal for 1985, he said, but it will have to be obtained through collective bargaining, not legislation. The same goes for early retirement.
Still, the actions amount to the ''pause'' that Finance Minister Jacques Delors and other moderates within the government have been arguing for. Until now, the government has not broken stride in plowing ahead with its socialist reforms.
The measures run the risk of exacerbating the divisions within the government. They also run the risk of satisfying neither the grumbling businessmen nor the restive unions.
Immediate reaction to the government moves from both sides was, in general, positive. But it was a qualified positive.
''It's a step forward,'' said Yvon Gattaz, leader of the Conseil National du Patronat Francais, the employers' federation. But he expressed disappointment that the Patronat's demand that the corporate tax be frozen at its 1981 level had not been met.
As a result, he said the actions were not sufficient to provoke the psychological and economic shock required to spur investment.
Mr. Gattaz's spokesman, Bernard Giroux, explained why. ''The Socialists have raised our charges by 93 billion francs, and now they're only cutting it by 20 billion,'' he said. ''We need more.''
If the government gives in more, though, the unions might revolt. Already, the powerful Communist-led Confederation General de Travail (CGT) has condemned the pro-business measures as ''unjustified,'' saying they ''deceived the workers.''
But that was somewhat to be expected, since the CGT has criticized the government for not reforming fast enough. More important was the initial approval of France's two other major unions, the moderate-left Force Ouvriere and the socialist Confederation Francaise Democratique du Travail (CFDT).
''To increase employment, we agree (that) corporate charges had to be reduced ,'' Force Ouvriere said.
While agreeing with Force Ouvriere that such measures were necessary, the CFDT took a harder line. ''We have told Mauroy we want no further cuts on the professional tax,'' CFDT spokesman Guy Lorant said. ''We also have told him that we don't want a passive government, that they must push the Patronat to negotiate seriously on reducing work hours and retirement age.''
It is clear, then, that in its effort to regain the confidence of business while keeping the unions in line, the government is walking a tightrope.