Portugal readies tax incentives drive to help reeling economy

LISBON, March 21 Thu Mar 21, 2013 3:10pm EDT

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LISBON, March 21 (Reuters) - Portugal is preparing to launch an industry support programme involving tax incentives for firms to pull the bailed out country out of its worst recession since the 1970s.

The strategy will focus on financing for enterprises and will use competitively low corporate tax rates to support investment, economy minister Alvaro Santos Pereira told parliament on Thursday.

"The economic policy will zero in on establishing strong investment incentives, be it via fiscal credits to attract investment or a significant bet on our fiscal competitiveness," he said, without giving details of proposed tax rates.

Last month, the minister said Lisbon floated plans to its international lenders to cut its corporate tax rate to one of the lowest levels in Europe for new projects. He has defended lowering the rate to 10 percent from 25.

Lenders from the European Union and IMF are studying, with the government, a fiscal reform that is likely to include a lower corporate tax in some form after bailout austerity, that involved many heavy tax hikes and left the economy reeling.

The government had already approved 700 million euros ($905 million) in financing for small and medium-sized firms this year, Santos Pereira said, with another 1.3 billion euros to be distributed under a special growth programme.

Last week, the lenders eased Lisbon's budget goals and gave it more time to make unpopular spending cuts. Gross domestic product is expected to drop 2.3 percent this year after last year's 3.2 percent.

The minister reiterated that the country cannot abandon its general course aimed at putting it public finances in order and diminishing debt and "it is fundamental to combine budget consolidation with the strategy of stimulating economic growth."

Still, he called on Europe to "become more friendly to investment" and not just austerity.

"If Europe really wants to avoid a decline, to regain growth it once had, then Europe has to change, and Portugal with it."

Finance Minister Vitor Gaspar said on Tuesday Lisbon's return to the bond markets in January after its mid-2011 bailout has started to reverse a crippling lack of financing for the economy although the loans are yet to trickle down to smaller companies. ($1 = 0.7737 euros) (Reporting By Filipa Lima and Andrei Khalip; editing by Ron Askew)

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