France: the bill introducing social VAT and increasing the minimum number of apprentices in businesses was adopted

Social VAT.  This was one of the most controversial topics of the social summit of January 18 (see our dispatch No.  120027).  The measure aims to reduce labor costs by €13.2 billion in order to reduce the competitiveness deficit of the French economy, particularly the industry, the Budget Ministry said.  The system entails removing the family contributions deducted from salaries (employers’ contribution only, which amounts to 5.4 percent) for wages lower than 2.1 times monthly minimum wage (€2,290 after tax).  Then, the rate will be gradual for wages ranging between 2.1 and 2.4 times monthly minimum wage (€2,620 after tax), until the normal rate is reached (5.4 percent).  Correlatively, normal VAT (19.6 percent) will increase by 1.6 percentage points and CSG on capital income by 2 points (from 8.2 up to 10.2 percent).  This reform will come into force on October 1, 2012.  The Budget Ministry says these contribution reductions should affect 80 percent of manufacturing staff – 75 percent in the automotive industry – and 97 percent in agriculture.  The cut should amount to €120 a month for wages amounting to 1.6 times minimum wage and to €158 for wages amounting to 2.1 minimum wage, still according to the Ministry.  The displayed goal is to lower labor costs and therefore stimulate competitiveness, when the reindustrialization and the fight against the country’s record trade deficit.