* Cabinet to unveil draft proposals on Thursday
* Tax breaks, streamlined procedures, funding incentives
* Foreign investment slumps during crisis
By Francesca Landini and Giuseppe Fonte
ROME, Sept 18 The Italian cabinet on Thursday is set to unveil tax incentives, consulting services and faster start-up rules for foreigners doing business in Italy, the first step in a drive to lure more foreign investment to the euro-zone's third-largest economy.
The measures will be contained in a draft programme called "Destination Italy", drawn up by ministries with input from businesses including oil giant Eni SpA and intended to form the basis for legislation later this year.
"Predictability on tax issues, authorisations and business rules is what we want to give foreign investors," said Fabrizio Pagani, an economic adviser to the prime minister who helped draft the measures.
Recession coupled with more deeply-rooted problems, such as high corporate taxes and a labyrinthine justice system, have slowed foreign investment.
Some $9.6 billion was invested last year, down from an annual average of $36.6 billion in 2005-2007, a period that is considered a good indicator of pre-crisis flows according to the United Nations Conference on Trade and Development, a multilateral organisation that promotes international trade.
The government hopes to help foreign investors by concentrating all commercial lawsuits involving non-Italian firms into three cities - Milan, Rome and Naples - rather than have cases scattered across the country.
It also hopes to introduce fast-track tax consulting for foreign companies and to reduce the amount of time it takes businesses to obtain the paperwork needed to build factories.
Prime Minister Enrico Letta's left-right coalition government has been paralysed by infighting as it seeks to address Italy's worst postwar recession.
As an example of the challenges foreign investors face, the draft cites a World Bank survey ranking Italy 103rd in the world in terms of how easy it is to get construction permits.
More specific measures include making it easier and cheaper for small firms to access capital other than through bank loans, which have dwindled over the past years, and tax breaks to encourage more smaller companies to seek stock market listings.
It also confirms the government aims to provide, by the end of October, a list of planned privatizations and reiterates a pledge to lower the tax burden for companies.
"Italy is too slow in giving the green light to foreign investments, while uncertainties in the way fiscal rules are applied and the length of judicial trials also keep foreign investors away," said Sandro De Poli, head of General Electric in Italy and a member of the advisory committee together with Eni.
GE has been one of the relatively small number of major foreign investors in Italy since 1994 when it acquired Nuovo Pignone, a specialist in machinery for the oil and gas industry. Last year, it bought the aviation unit of Italian aerospace supplier Avio for $4.3 billion.
Other companies have not been as successful. Energy giant British Gas, for example, left the Italian market last year after having spent 10 years in a fruitless effort to win a licence to build a regasification plant in southern Italy.
Spain attracted $28 billion in 2012, three times the volume of Italy's foreign investment. Despite Spain's crippling economic downturn and high unemployment, economists say the country has embarked on more ambitious structural reforms, particularly to its labour market.
The World Bank ranks Spain 44th in the world in terms of the ease of doing business, compared to Italy's 73rd ranking. Germany ranks 20th and France 34th. One result: French retailer Fnac plans to open 12 new stores in Spain by 2015, with an investment of 100 million euros, while it sold its Italian stores last year.
Car companies Renault-Nissan, Ford, Iveco and Seat have all announced big investments for their Spanish plants, according to ICEX, the Spanish institution that support foreign investments.
Luca Manzella, former CEO at British Gas Italia, now senior adviser at Arthur D. Little, says the new measures envisioned by the government are a start but there is a long road ahead in convincing investors back to Italian shores.
"Dedicated desk and courts for foreign investors are a good idea over the short-term, but it won't be enough," he said. (Editing By Alessandra Galloni and Janet Lawrence)