UPDATE 4-Turkey to cut labour tax, reform agriculture

(Adds analyst comment, para 6)

By Hatice Aydogdu and Orhan Coskun

ANKARA Jan 10 (Reuters) - Turkey will cut social security payments for employers by 5 percentage points this year, Prime Minister Tayyip Erdogan said on Thursday in line with a drive to create more jobs for its fast-growing young population.

Unveiling a wide-ranging action plan for his government, Erdogan also announced the scrapping of direct income support to farmers and the completion within five years of a huge dam and irrigation project in impoverished southeast Turkey.

"We will take measures in the action plan to increase employment... Bureaucratic formalities will be reduced, active workforce programmes will be supported. Unemployment is falling under our programme," Erdogan said in his televised address.

Unemployment officially stands at 9.3 percent but is believed to be much higher due to a large unregistered economy and has long been a sensitive area for Erdogan's pro-business government, which was re-elected with a big majority last July.

Erdogan said the 5 percentage point cut in social security premiums would be implemented in 2008. The economy minister previously said 2008 would be too early for such a reform, as it would eat into tax revenues.

"Should the move prove effective at stimulating formal employment growth over the longer-term it should be closer to revenue neutral despite the likely short-term hit the fiscal accounts will take," said 4CAST analyst Nicholas Kennedy.

Finance Minister Kemal Unakitan, speaking at the same event, said there were no plans to cut income tax in 2008.

Under the agriculture reform plan, future government support would be linked more to production -- a move preferred by farmers -- than to the size of their land area.

GNP GROWTH

Turkey's gross national product amounted to $488-489 billion in 2007, Erdogan said, putting the government on track to meet its 5 percent growth target.

Turkey had set a growth rate of 5 percent in 2007 to bring gross national product (GNP) to $488.959 billion. The growth target for 2008 is 5.5 percent.

Erdogan said Turkey's large current account deficit was a problem, but that the government was not worried because the economy was strong.

In the first 11 months of last year, the current account deficit expanded 11.6 percent year-on-year to $32.758 billion.

Erdogan reaffirmed the government's determination to move the central bank's headquarters, along with those of state-owned banks Ziraat, Halk and Vakif banks, to Istanbul -- Turkey's commercial hub -- from the political capital Ankara.

Reiterating his party's monetarist philosophy, Erdogan said the government aimed to make price stability permanent and to further cut the ratio of public debt to GNP.

Turkey will hold a nuclear power station tender by May at the latest and aims to begin construction this year, he said, underlining Ankara's desire to reduce its heavy dependence on oil and gas imports to feed its fast-growing energy needs.

On the political front, Erdogan said preparations for a new Turkish constitution were complete and the draft would be presented in the coming weeks.

In its manifesto for the July 2007 elections, the centre-right, Islamist-rooted AK Party vowed to replace Turkey's constitution -- a document drafted after a 1980 military coup -- with a text stressing individual rights and freedoms. (Writing by Daren Butler and Selcuk Gokoluk, editing by Gareth Jones and Tony Austin)