`Moment of truth` for France`s left-wing gov`t

France`s first left-wing government in 17 years is turning right after just seven months in office. Led by Socialist President Francois Hollande, the French government announced on Tuesday 20 billion euros (25.7 billion U.S. dollars) worth of corporate tax cuts to boost investment and employment. Louis Gallois, former chairman of the European Aeronautic Defense and Space Company who now heads the French national competitiveness committee, submitted to his government 22 plans for strengthening France`s industrial competitiveness. He said social welfare costs should be cut 30 billion euros (38.5 billion dollars) for companies over two years to recover national competitiveness. Most of his proposals have been accepted.

The Hollande administration said it will cut fiscal spending and make up for reduced tax revenue by hiking value-added and environment taxes. This means the French government is adopting the corporate tax cuts and value-added tax hikes of the previous administration led by center-right President Nicholas Sarkozy. The French economy is in big trouble as shown by weakening competitiveness of major industries, zero GDP growth, high youth joblessness of 25 percent, and a fiscal deficit reaching 5 percent of GDP. French manufacturing`s hourly wage is 20 percent higher than that of the eurozone average. Regular workers put in 39.5 hours a week, fewer than the U.K.`s 42.2 hours and Germany`s 40.7 hours.

Despite its weakening economy, the pro-labor Hollande administration restored the pension-eligible age from 62 to 60 and raised the minimum wage by 2 percent. The maximum tax rate of high-income earners was hiked to 75 percent, dampening consumption and investment. Money of the French wealthy class flew out of the country and unemployment topped 10 percent. The International Monetary Fund forecast France`s economy to grow 0.4 percent next year, half of the projection of 0.8 percent by the French government. The fund also warned that France could suffer the same fate as Italy and Spain if overall reform of labor costs and rigid work conditions is not conducted.

The Hollande administration could no longer adhere to left-wing policies. Finance Minister Pierre Moscovici pledged to create 300,000 jobs over the next five years through corporate tax cuts, calling this time "the moment of truth." He, however, also postponed welfare system reform that would lay a huge burden on companies until next year. The compromise between management and labor on raising the flexibility of employment and layoff is also being delayed. Reforming a society accustomed to generous welfare protection is proving quite difficult.

France`s case shows that welfare spending cannot continue if economic growth is not maintained through filling the coffers, and that the best form of welfare is creating jobs. In Korea, presidential candidates are making excess welfare pledges that could plunge the country into economic chaos in one or two years.