IMF tells France keep deregulating, curb wages

France should reduce unemployment benefit, change policy to ensure that minimum wage rises remain moderate and ease the cost of labour by shifting the burden to indirect sales tax, or VAT, the IMF says.
French Finance Minister Christine Lagarde, a candidate for the job of IMF chief, welcomed the verdict on her country's economic prospects and said she took note of the reforms the International Monetary Fund was urging Paris to pursue.
In a yearly report, the IMF said the second-largest economy of the euro zone was expected to expand at a "robust" rate of two percent in 2011 and 2012 and it urged France to deliver on deficit reduction goals that it said struck "the right balance" between speed and sustainability.
"The recovery of the French economy is progressing, and growth in 2011 is likely to exceed earlier expectations," the Washington-based IMF said in its report. The IMF said France could provide a "strong positive signal" for the longer term by ensuring parliamentary adoption of a new fiscal rule that makes the commitment to balanced public finances a more permanent fixture. A proposal on that has already been presented to parliament but many believe it will fail to secure the three-fifths majority that it needs across both houses of parliament. The other more sensitive recommendations less than a year from presidential and legislative elections concerned labour market reforms.
"A reduction of the comparatively long duration of unemployment benefits or a lowering of the benefit level over time could strengthen incentives for job search and thus increase effective labour supply," it said.
The compulsory minimum wage of 9 euros per hour came under fire too in the IMF's recommendation that France ensure further wage moderation.
"Given French society's strong preference for a uniform minimum wage, continued minimum wage moderation should help reduce the negative labour demand effects," the IMF said.
"The indexation formula should be reviewed in order to prevent the SMIC (minimum wage) from increasing more than the median wage." France should also try to keep labour costs under control by adjusting a taxation system that was heavily skewed towards that area as a source of revenue for the state.
"A revision of the tax system, shifting the burden toward indirect (in particular VAT), environmental, and property taxes could allow lowering labour taxes and provide a more "growth friendly" environment," the IMF said.