Hollande ties business tax relief to investment in France

By Leigh Thomas and Jean-Baptiste Vey

PARIS (Reuters) - President Francois Hollande on Tuesday tied a promise to ease the tax burden on French companies to their readiness to invest in France and hire young and old workers, hardest hit by high unemployment.

Aiming to make firms more competitive and cut unemployment now running at around 11 percent in France, Hollande pledged last week to offer 30 billion euros ($40 billion) in tax breaks to reduce labour charges, and trim regulations, in return for more hiring.

Business groups have opposed fixed hiring targets. But Hollande used an address to employers and unions to insist that firms would have to commit to investment and prioritise hiring young and older workers in order to get the labour tax break.

"Companies must commit to invest more in France and relocate their activities as much as possible at home," the president said in a speech billed as the official launch of his so-called "responsibility pact".

Hollande's attempt to ease the tax burden is part of what commentators see as a more centrist stance being adopted by the Socialist president to revive the euro zone's second-largest economy.

The government will hammer out detailed targets in talks with unions and business leaders, which are due to start on January 27 and last months.

An official in Hollande's office said there would not be an overall target on numbers of workers to be hired, but some companies such as retailers could have a target while those exposed to international competition - such as the struggling car industry - would be exempt.

The official said that the tax burden would begin to fall as soon as next year and it would not be limited to companies.

"If a small gesture is made for companies then there will probably be one for households as well," the official said.

Hollande, whose economic policy has been overshadowed in the past week by focus on his private life following reports of an affair with an actress, also on Tuesday urged employers and unions to present options by the end of this year on how to improve France's notoriously brittle industrial relations.

BUSINESS "ASPHYXIATED"

The "responsibility pact" recalls the 1998 "alliance for jobs" which Germany's Social Democrat former chancellor Gerhard Schroeder launched with unions and business in his first term.

Though French businesses have cautiously welcomed the pact, they are wary about getting tied down to specific targets and are eager for more concrete details.

Pierre Gattaz, president of employers' union Medef, said France's private sector could create one million extra jobs if given such relief, but insisted that committing individual sectors to specific targets was unworkable.

"I am not talking about written commitments," he told France 2 television.

"One million jobs, that is the consequence of the package of measures we expect - and which we expect in 2014, moreover. Companies are being asphyxiated and terrorised by a political mood that was difficult for them in 2013," he said.

Unions voiced concern that the tax break would be tailored to suit companies' interests at the expense of their workers.

"We are going to say what we have say, but we're not going to let ourselves be pushed around," said Jean-Claude Mailly, head of the left-wing Force Ouvriere union.

Hollande has said that firms would be completely exonerated from contributions to family benefit funds by 2017 - a volume of tax breaks put at around 30 billion.

However, he also suggested that the government could partly offset the cost of the measures by replacing 20 billion euros of tax credits already promised to companies from 2014 - in other words the net new impact could be only 10 billion euros.

France has some of the highest state spending and taxes in the world, with public spending currently around 56 percent of national output - some 12 points higher than that in Germany - and a total tax burden at over 40 percent of output. French corporate margins are the lowest in the euro zone, according to Eurostat data.

Hollande has said he is ready to find an extra 50 billion euros worth of cumulative spending cuts over the three years. He is looking at cuts in France's complex system of local government and its vast welfare system.

The presidency official said an additional 5-10 billion euros in budget savings would probably have to be found to finance the tax cut and that it would be announced in the coming months.

($1 = 0.7373 euros)

(Reporting by Mark John, Leigh Thomas and Nicholas Vinocur; Editing by Susan Fenton)