On 24 May 2016 the IMF published a report on its website following the conclusion of consultations with France under Article IV of its articles of agreement. The IMF notes in the report that France’s economy is recovering but major efforts are required for job creation and strengthening the public finances. Policies have progressed by means of reductions to tax on labor and structural reforms to enhance competition.
The IMF notes that the French government has made progress on the reduction of labor taxes under the Pacte de Responsabilité et de Solidarité (PRS) and the CICE (wage tax credit). The loi El Khomri currently in parliament would increase scope for company-level labor agreements and remove judicial uncertainty around dismissal. However a lasting reduction of unemployment and debt is needed and the recent tax and labor reforms should be accompanied by more measure to remove barriers to job creation.
The IMF recommends limiting government spending growth to the rate of inflation generally along the lines of the Stability Program from 2017 onward. Together with reforms to make spending more efficient and protect vital services this could achieve an annual structure fiscal adjustment of around 0.5% of GDP, moving towards medium term fiscal balance and eventually leaving room for a reduction in the heavy tax burden.
The IMF considers that the labor market in France has been less adaptable to the evolving global economy due to many centralized labor agreements, long judicial procedures over dismissals, a relatively high minimum wage and a high labor tax wedge. The government has reduced the labor tax wedge for low wage earners through the PRS and CICE while the loi Rebsamen has streamlined regulations for social dialogue in small and medium enterprises (SMEs). The loi Macron has moved towards reforming the labor arbitration system and the loi El Khomri would increase scope for labor agreements at the company level. The IMF recommends further labor reforms including refinements to unemployment insurance rules; further improving education and training; and moving ahead with the plan under loi Sapin II to ease regulations for start-ups and the self-employed and enhance the business simplification process.
