The French government has slashed value-added tax (VAT) for restaurant and cafe owners from over 19 percent to just 5.5 percent. Industry bodies say the move will be good for both the consumer and the employment market.

Both the big restaurant chains and many smaller restaurants have said they will pass on the tax cut to their customers. That means an average espresso will now cost just 1 euro ($1.40), a drop of 20 euro cents.

Lowering prices is not obligatory under the new measure, but industry associations are tipping that more than 80 percent of businesses will adjust their menus in the customer's favor.

France has campaigned for seven years to get the go-ahead from European Union partners to lower the value-added tax which restaurateurs and cafe owners have to pay.

Former French President Jacques Chirac had pushed hard for the cut but was blocked by EU partners including Germany.

Germany was afraid of losing out in cross-border trade to French restaurants and was reluctant to match the proposed cuts because of budget ramifications.

The French state will reportedly lose 2.38 billion euros a year in tax revenue, but the scheme is meant to stimulate the economy from the bottom up.

As part of the deal, restaurant proprietors agreed to step up hiring and create 40,000 new jobs over the next two years, including 20,000 apprentice positions.

ch/reuters/afp

Editor: Kate Bowen