Desperate Sarkozy calls for pay cuts and tax increases

In an act of supreme courage - or electoral suicide - President Nicolas Sarkozy yesterday told France to work harder for lower pay and higher taxes.

Sarkozy, insisting that he was speaking as President, not as candidate, announced a 1.6 per cent rise in VAT and changes in employment law to allow wage cuts and longer hours.

In a TV interview broadcast on all the main channels, the President adopted what some of his supporters called the "courageous" or "Churchillian" defence against the increasingly powerful electoral challenge of the Socialist candidate, Francois Hollande. Other despairing centre-right politicians spoke of a "kamikaze" approach to a spring election which might already be slipping out of the President's grasp.

Sarkozy said urgent and radical reforms were needed to allow France to compete in Europe and the world. Following the loss of its triple A credit rating and a surge in unemployment to nearly 10 per cent, emergency action was required to restore the competitiveness of France's economy.

He proposed a 1.6 per cent rise (to 21.2 per cent) from October in the basic rate of VAT. The €13 billion ($20.9 billion) raised would, he said, allow cuts in the heavy burden of payroll taxes paid by French employers. He proposed a change in labour law to allow companies and unions to negotiate wage cuts and exceptions to the 35- hour working week.

He announced plans to expand house building and impose tougher fines on companies who failed to hire apprentices. He said France would push ahead, before the European Union, with a "unilateral" 0.1 per cent tax on all transactions.

It was time to address the French people with courage, honesty and clarity, Sarkozy said. Urgent action was needed to reduce the burden of state spending on private enterprise or industrial jobs would continue to drain away to Germany or China.

There seems little chance Sarkozy can push though such unpopular measures before the two-round presidential election on April 22 and May 6.

Parliament dissolves at the end of next month and the upper house, Le Senat, now has a centre-left majority.

Many of Sarkozy's own centre-right supporters fail to understand why such drastic action is needed after five years of modest reforms and zig-zag economic policies.

"It's an act of political suicide," said Lionnel Luca, of the Union pour un Mouvement Populaire.

- Independent