OVERVIEW

  • This is the first edition of ADA’s chartbook on France. GDP growth in the past few quarters has been rising, reaching 2.2% YoY in the past quarter, and we expect the growth rate to be maintained around 1.5% in 2018E. According to our analysis, this growth rate may be backed by increasing confidence indicators, which are likely to fuel domestic demand.
  • October 2017 saw the CPI increase by 1.1% YoY. We do not expect a significant variation in inflation in the coming months.
  • Surveys on competitiveness are showing improvements, and we believe that the proposed reforms under President Emmanuel Macron are likely to help the sector further.
  • The official budget target is to bring down the expenditure growth from 1.8% in 2017 to 1.5% in 2018E. Furthermore, the budget deficit is targeted to be kept at 2.6% for 2018E.
  • However, our models predict that the French economy is likely to fare even better than its deficit target, as our estimate for the budget deficit stands at 2.36% for the coming year. We also expect revenue growth to do well, at 2.8% in 2018E.
  • Our estimates for debt-servicing costs for housing in France range from about 30% to 35%, similar (although slightly towards the higher end) to the debt-servicing costs of other European countries we have analysed.

Policy changes put forward by President Emmanuel Macron:

LABOUR MARKET

    • Limitation of compensation in the event of litigation. In exchange for these new ceilings, the government has increased the minimum amounts of statutory severance pay. Reduction of employee appeal periods.
    • Possibility of bargaining without a union if fewer than 50 employees: where there is no union in a company (which is the case in 96% of SMEs), enterprise agreements are now negotiated by union-mandated employees. In small- and medium-sized enterprises, the reform provides for an employee to enter into a company agreement. In companies with between 11 and 50 employees, an agreement can be negotiated with a non-union delegate. In companies with fewer than 20 employees, where there is no union-mandated employee, a referendum may be organised for employees on the initiative of the employer.
    • Economic layoffs: widening the scope of economic redundancies
    • The economic difficulties of the licensing groups in France will be appreciated at the level of national territory, instead of the world.
    • Introduction of collectively agreed termination
    • Right to secure home working – now in written into the law. For the better conciliation of professional and private life.

TAXATION: Households

    • The reform of the wealth tax and the abolition of the housing tax are the major proposed changes, which may be implemented as early as 2018E.
    • Emmanuel Macron has decided to re-focus the wealth tax on real estate assets, so that securities are not taxed. The creation of the “real estate wealth tax” (IFI) is intended to stimulate activity by encouraging the most taxable taxpayers to invest in the real economy.
    • The wealth tax reform will be supplemented by the implementation of a single flat rate levy (PFU) of 30%, also called a flat tax, set up on household income, with the exception of Livret A, PEA (savings in shares) and some life insurance policies. This reform aims to simplify the taxation of capital.
    • An increase in the taxation of luxury goods: from 10% to 11% on the sale of precious metals, and an additional tax capped at EUR 8,000 for sports cars that have 36 brake horsepower.

TAXATION: Businesses

    • One of the main measures is to lower the corporate tax rate (IS) from 33.3% to 25% by 2022E.
    • Withdrawal of the 3% tax on dividends: created in 2012, this tax has been criticised constantly by the business community.

POSTED WORKERS

The government has drafted eight points to amend the draft revision of the status of posted workers currently under discussion by the European Council. The main points being defended by France are:

    • Limit detachments to 12 months over a period of two years (the commission proposes 24 months vs. 36 currently);
    • Ensure that allowances for transportation, accommodation and meals are integrated in posted workers’ salaries; and
    • Create a European platform managed by the Commission to share information between labour inspectors.

On 23 August 2017, Emmanuel Macron met with the leaders of Austria, the Czech Republic and Slovakia to discuss the issue of detached work (i.e., related to posted workers – people who work abroad). For the President of the Republic, the current status is seen as “a betrayal of the European spirit”. At the end of the meeting, Slovakia and the Republic declared themselves in favour of France’s position. The Eastern European countries (mainly Poland, Romania and Bulgaria), the main providers of posted workers, are against these projects, which they believe restrict the free movement of workers.

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