A €20bn (£16bn) package of tax breaks has been announced by French prime minister Jean-Marc Ayrault in an attempt to reverse the country's spiralling fortunes and boost its competitiveness.

The move will include new tax credits for business and will be funded by €10bn (£8.3bn) in additional spending cuts, a 0.4% increase in the VAT rate from 19.6% to 20%, and new environmental taxes. Restaurant taxes will also rise by 3%.

Ayrault rejected a recommendation to cut employer wage taxes made in a report by French industrialist Louis Gallois, former head of defence group EADS, which called for dramatic action be taken to boost the flagging economy.

President Francois Hollande's seven month-old government is afflicted by a rising unemployment rate of over 10% and a record trade deficit of €70bn last year.

The country's economic performance is in stark contrast to EU powerhouse, Germany, which enjoyed a 22% upswing in intra-EU exports in 2011 while France recorded 9.3%.

On Monday, the International Monetary Fund highlighted France's 'lack of competitiveness' as 'a major stumbling block to its economic recovery'. In August, the French finance ministry published its second 2012 supplementary finance bill (PLFR) in a bid to offset the spiralling budget deficit and increase the tax take by around €7.2bn (£5.7bn) this year.

The ministry said that the forecast for economic growth has been revised downwards to 0.3%, noting that given the economic slowdown, tax revenues have also been revised downwards by €7.1bn.