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The Boston Globe

Business

France promises $25b in tax credits for business

PARIS — France’s government has promised $25 billion in tax credits to businesses as part of a ‘‘competitiveness pact’’ that it hopes will spark innovation and lower unemployment, but falls short of calls in a recent report for a ‘‘shock’’ to the economy.

The announcement of the plan Tuesday came a day after a government-commissioned report by Louis Gallois, former head of Airbus parent EADS, said the country’s ailing economy needed a big kick to stay globally competitive.

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Prime Minister Jean-Marc Ayrault said the government’s plan, which includes a $641 million fund to help struggling small businesses, would put the country ‘‘back at the heart of the world economy.’’

‘‘This new French model will consist of finding a way back to creating jobs and will no longer be financed by permanent deficits,’’ he said.

However, the government plan has fallen short of some of the recommendations in the Gallois report and raises fears that the Socialist administration of President Francois Hollande is not doing enough to revitalize the French economy.

For example, the $20 billion tax credit is to be implemented over three years — with $13 billion available in 2013 and the rest split over the following two years. Gallois recommended in his report for the government that the breaks should happen over one or two years to have the maximum effect.

The measure also takes the form of an income tax credit, rather than a reduction in the social charges employers pay on salaries, as Gallois had suggested.

The government argues that its method is designed to have immediate impact, while deferring payment until 2014 when next year’s tax bill comes due. That, however, assumes that companies will start spending and hiring right away in anticipation of the credit.

France faces several major economic challenges, including an unemployment rate of 10.8 percent, and labor regulations that make firing so difficult it has discouraged hiring.

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 in discussions to overhaul the labor market, but the issues are so touchy that it’s unclear how far they’ll go.

Gallois said 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.

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