The move follows the death of 15,000 people in a heat wave this summer which caused an outcry in France over care for old people.
"Last summer was a murderous summer. It showed that we have a duty to take action to help elderly people," Prime Minister Jean-Pierre Raffarin told a news conference on Thursday.
Under the scheme, workers will give up one day-off a year -either on a public holiday or another non-work day - to raise $10.30 billion from 2004 to 2008. "To finance this, we need a contribution that calls on fraternity and solidarity. People that work will give a working day, companies will give a day of profit," Raffarin said.
Employers will pay an additional contribution equivalent to 0.3 percent of their payroll in exchange for the extra profit gained, and capital revenues will be subject to a new 0.3 percent tax.
Thousands have died from a heat
wave ... many were elderly
The money will go towards hiring 15,000 nursing staff and creating 10,000 new vacancies in retirement homes by 2007, Raffarin said. Half the money will go to help the disabled.
Raffarin said public employers would scrap the Pentecost
public holiday, which generally falls in May, but private sector
companies and unions would be free to choose which day off they give up.
"There is no solidarity in this plan"
Francois Hollande, leader of the opposition Socialist Party
Top business group Medef welcomed the plan which will start in the year beginning next 1 July. However, economic research institute OFCE warned that forcing firms to ramp up output when demand remained weak could prompt employers to slash up to 30,000 jobs nationwide to rein in costs.
Francois Hollande, leader of the opposition Socialist Party, said the extra funds were roughly equivalent to the government's planned reduction in income tax in 2004. "There is no solidarity in this plan which is insufficient, badly financed and unfair," Hollande said.
Raffarin said that apart from some administrative savings the scheme would have no direct impact on the French budget. France is under fire for a 2004 budget that will break the European Union's deficit ceiling of three percent of gross domestic product (GDP) for the third year in a row.