Portugal to lower taxes in effort to revive flagging economy

Move is part of plan of incentives to drag economy out of worst recession since 1970s

Portugal's government plans to lower company tax rates "significantly" as part of a wider plan of incentives to drag the economy out of its worst recession since the 1970s, economy minister Alvaro Santos Pereira said.

He also promised to step up the financing of the economy by state-owned bank CGD that will provide €1 billion euros this year and €2.5 billion in 2014, and later to create a development bank to boost such funding further, especially for exports-oriented small and medium-sized companies.

"We want more investment and the main instrument here is the reform of the company tax that we intend to carry out via a significant decrease in tax rates to make investment more attractive," Mr Santos Pereira told a briefing.

The company tax rate in Portugal is 24 percent. The plan partially reflects recent concerns among European policymakers about how far budget cuts aimed at containing the region's debt crisis have damaged economic growth, although Lisbon has promised to press on with budget tightening.


Mr Santos Pereira said the plan should lift the share of exports in its gross domestic product to 50 per cent by 2020 from this year's estimated 40 per cent.

Despite the recession, exports of goods and services have been rising in the last two years, making up one of the few bright spots in the Portuguese economy.

Annual GDP growth potential is expected to rise to 2 per cent in 2020 from an average 0.7 per cent in 2000-2010, before the country slid into its deep recession. The economy is expected to shrink 2.3 per cent this year after last year's 3.2 per cent slump before returning to meagre growth in 2014.