France must do more to boost competitiveness and create jobs
France has avoided the most severe impacts of the global economic crisis and turmoil in the euro area, but must now take action to boost competitiveness and create jobs, according to the OECD’s latest Economic Survey of France.
The Survey, presented in Paris by OECD Secretary-General Angel Gurría to French Minister of Economy and Finance Pierre Moscovici, urges France to attack the pervasive bottlenecks that have limited economic growth and maintained high unemployment over the past decades. “The French economy has tremendous assets and considerable potential, but excessive regulation and high levels of taxation are gradually eroding its competitiveness,” Mr Gurria said.
“France has a unique opportunity Tuesday to implement a bold and ambitious reform strategy that will restore public finances, create jobs and boost firms’ competitiveness. A more productive and more competitive French economy is not only a national goal, but an important element of a stronger Europe,” Mr Gurria said.
While congratulating the French Government for significant progress in the past months, the OECD identifies several priority areas for action:
Bolster the economy’s potential growth rate. Reductions in public spending are required to rein in the budget deficit and allow for lower taxes on labour and business income - a key element in future competitiveness plans. Labour market reforms - including a new definition of economic dismissal, simplified layoff procedures, and more effective occupational training and job search assistance - are needed to boost job creation. In this sense, the recent labour agreement with social partners is welcome. Greater competition in services and rationalisation of housing policies will be crucial to raise purchasing power, create jobs and enhance competitiveness.
Tax and transfer system reforms are essential. The size, complexity and instability of the tax and transfer system weigh on the economy, and require thorough simplification. Savings are taxed very differently depending on asset classes. Tax bases, notably for VAT, are narrow. Reforms to unemployment benefits would save costs and promote employment.
Staying the course on improving public finances is necessary. Efforts to reduce the structural deficit must continue as planned. Public spending is very high as a percentage of GDP and needs to be reduced, to ease the tax burden in the medium term.
The difficulties facing young people call for wide-ranging actions. Replacing the many income-support programmes with an extension of the minimum income scheme to young adults would reduce youth poverty, but this must be accompanied by stronger requirements to train, search for and accept work. France’s high minimum wage tends to exclude the least educated youths from jobs. The transition from school to work is indicative not only of weaknesses in the labour market, but also of an education system that distributes resources poorly, generates dropouts and suffers from a still too fragmented and tightly controlled tertiary system.
Source: OECD
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