Portugal plans tax credit to spur investment and job creation

Portugal unveiled Thursday a massive tax credit for businesses that make investments to revive growth in the bailed-out eurozone country and create jobs.

"The moment for investments has arrived," said Finance Minister Vitor Gaspar at a news conference outlining measures the government hopes will help reverse rising unemployment that has hit a record high 17.7 percent.

The main proposal is a tax credit for businesses, up to 20 percent, for investments up to 5 million euros ($6.5 million) made in the second half of this year.

"The corporate tax rate on companies which invest in 2013 could be reduced to 7.5 percent" compared to the current rate of 25 percent, explained junior finance minister Paulo Nuncio.

Gaspar said "this unprecedented measure" should encourage "the creation of jobs for youths, which is a priority for this government and Europe."

He also announced a deal with German state-owned bank KfW to support lending to Portugese companies and that the government was considering reforming the corporation tax to make it "more modern, more competitive and more stable to reassure investors."

Portugal's economy, which has a 78-billion-euro ($101-billion) bailout from the EU and IMF, has been in recession for two years, and contracted by another 0.3 percent in the first quarter.

Gaspar said the EU and IMF had approved of the tax credit and other measures which aim to get the Portuguese economy growing again later in the year.

The minister defended the tough adjustments and reforms required by the EU and IMF, saying they were needed to reassure investors and had strengthened the structural bases of the economy and financial system, as well as helping repair public finances.