French businesses fear ‘systematic trangling’

June 19, 2012, Tuesday/ 16:03:00

France's new Socialist government risks smothering businesses under new taxes and regulation, the head of the employers association said on Tuesday as figures showed company morale plummeting to crisis levels.

Bracing for a less business-friendly government, Medef President Laurence Parisot said employers' concerns were falling on deaf ears in the government as they faced what she described as unprecedented uncertainty due to Europe's debt crisis. She warned margins were tumbling, orders collapsing and cash flow dwindling as investment and hiring were put off or cancelled outright in the face of the uncertain economic outlook. "We've had many meetings with the staff in ministries to explain what's happening, but we are becoming deeply distressed. We fear a systematic strangling," Parisot told a news conference.

The government of President Francois Hollande, who was elected last month on pledges to fight unemployment and revive growth, is preparing to hike taxes on large companies and make firing workers more costly for employers to discourage layoffs. Other measures include a special tax on banks and energy companies, an increase in levies on capital gains as well as new rules to force firms to sell profitable businesses rather than shut them down when they are no longer wanted. Les Echos business newspaper reported on Tuesday that  Hollande's government was also planning a new 3 percent tax on dividends aimed at encouraging companies to invest profits rather than make payouts to shareholders. "The first source of financing for companies' projects comes from private investors. Increasing tax on dividends runs the risk that private investors either invest less or elsewhere," Parisot said. Her warnings came as data from the official INSEE statistics agency showed that business confidence fell in June to the lowest level since late 2009, when the economy was just beginning to emerge from its worst post-war recession. "This signals hard times ahead for the new government and stresses the urgency of implementing significant reforms in order to kick-start the economy as soon as possible," Barclay Capital economist Marion Laboure said. The Bank of France forecast last week that the euro zone's second-biggest economy began contracting in the second quarter after stalling in the first three months of the year.

The government is due to hold high-level talks with unions and employers next month on labor market and pension reform as well as to discuss financing the strained welfare system. "Let's be careful not to transform our country into a super-rigid enclave completely out of touch with the functioning of market economies as found everywhere else," Parisot said. British Prime Minister David Cameron said at a G20 meeting in Los Cabos Mexico that Britain would roll out the red carpet for French companies seeking refuge from the French taxman. Dismissing the remark as "British humor", Europe Minister Bernard Cazeneuve said on Canal+ TV: "In the array of measures we are going to take, there are measures favorable to companies, favorable towards investment and aimed at encouraging companies to stay in France."

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