France has largely sidestepped the massive budget cuts and reforms undertaken by its neighbors, despite having one of the world's highest proportions of state spending. Unions and companies are currently in discussions to overhaul the labor market - but the issues are so touchy in France that it's unclear how far they'll go.
Gallois warned in his report that the biggest problem in France is that because of high labor costs, companies have to slash prices in order to compete. Without high profit margins, companies have very little to invest in product innovation and quality. Ayrault promised that the pact would give companies more room to maneuver and address this problem.
The government's plan focuses on small businesses, often the motors of innovation and employment. It calls for small businesses to receive special help to compete internationally, and billions of euros in a new public investment bank will be reserved for smaller companies.
The government also promised to reduce red tape and to limit changes to its tax and other policies over the next five years. France has a very complex tax code - a major thorn in the side of companies, especially small ones that spend tremendous resources to figure out what they owe.Half of the money will come from spending cuts between 2014 and 2015. However, Ayrault did not detail what would be cut. The rest will come from new taxes, including a hike to most sales taxes - apart from basics like food which will benefit from a cut - in 2014. The new measure follows a similar plan by former President Nicolas Sarkozy to lower the tax burden on companies via a blanket increase in sales tax. At the time, the Socialists campaigned against the plan and one of their first moves in office was to scrap it. The new government's plan is similar, but lowers the sales tax on basic necessities, a move the Socialists hope will ensure the poorest people aren't unduly burdened.