Sarkozy vows to hike sales tax

The measure, condemned by opposition Socialists, should be the last key reform of Sarkozy's first term, and ministers said they would pass it before he stands for re-election in April's first round presidential vote. 

Under the reform, value added tax will be increased in order to raise funds to allow French employers' payroll contributions to be reduced, thus helping them compete with producers in lower income economies.

"I think it's in the interest of our country, in the interest of jobs," said Labour Minister Xavier Bertrand, a close ally of Sarkozy.

Sarkozy had already signalled in his end of year address to the nation that the measure, long discussed in France but often pushed back, would go ahead.

He said social charges "should not weigh principally on labour, which is so easy to outsource. We should reduce pressure on jobs and seek a contribution from imports, which compete with our products through low labour costs."

But some economists have warned against the reform, which they say would hit domestic consumer demand, the main motor of the flatlining French economy.

And Sarkozy's main challenger in the upcoming election, Socialist candidate François Hollande, has said he would not enact the measure, despite it having been championed in the past by some of his supporters.