IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
The IREF with "Contribuables Associés", the largest French taxpayers association, published a study showing how fiscal pressure destroys employment. The main figures of the study reveal the Government lethal action on companies and jobs:
> 12.2 bn € of new corporate taxes
> Tax burden making a 0.5% GDP decrease
> 99.500 jobs destroyed in 2012, 160.000 scheduled t be destroyed in 2013
> 70.000 jobs destroyed because of tax burden increase in 2013
> 21.5% in big companies and 78.5% in middle and small business
Read the study in French: La Boîte à outil de François Hollande détruit l’emploi
French companies have two solutions to fight against recession:
> Reducing the use of capital in production costs:
Using less capital will be used first – only 85% of capital is actually used - while diminishing working time. These two measures lead to a productivity decrease. If jobs will be saved immediately, competitiveness is hampered and this solution is not viable on the long term. This leads inevitably to the second solution.
> Reducing payroll:
Companies with a poor productivity level need to keep acceptable margins. To do so, they will have to reduce payroll in order to gain productivity and reach reasonable production costs.
The first solution has already been widely used by French companies with no satisfying results. It means that only the second solution is left to save companies. As a consequence, unemployment will dramatically rise in 2013. The UNEDIC forecasts 181.600 job destructions while the OFCE forecasts 166.000 destructions.
The French Government has scheduled to levy 12.2 billion euros more on companies. The OFCE thinks the measure will decrease the growth by 0.5%. This increase will have an impact on goods’ prices and purchasing power will be hurt.
Production costs are more expensive because of tax increases. Therefore investing becomes less interesting since the return of investment will decrease.
It is a fact that a 1% tax increase makes a 0.3% investment decrease. Since in France corporate tax went from 34.43% in 2012 to 36.15% in 2013, the 1.72% tax increase should result in a 0.5% investment decrease.
It is also a fact that Direct Foreign Investments for European countries decrease by 3.3% when there is a 1% tax increase. As a result the 1.72% French tax increase should give a 5.5% Direct Foreign Investment decrease.
Consequences on jobs are inevitable: Big Companies and their subcontractors are employing 5.1 million people. The 1.72% tax increase should destroy 15.000 jobs.
For big companies and subcontractors, when taxes increase, investments and activity decrease. Yet, all French companies are touched because of a domino effect.
The OFCE has forecasted a 0.5% GDP decrease in France in 2013.
The National Bureau of Economic Research (NBER) has found a 0.57% ratio between growth and employment. Therefore, the 0.5% French growth decrease would be the cause of a 0.28% employment loss. Since this 0.5% GDP loss is directly made by the French Government’s economic decisions, it can be said that the Government is liable for 70.000 job destructions.
On these 70.000 job destructions, 15.000 will be lost by companies targeted through the 2013 Finance Law. It means that 80% of job destructions are indirect consequences of the Government measures.
Read the study: La "Boîte à outil" de François Hollande détruit l’emploi