New Zapatero's stimulus plan

Spain's prime minister on Tuesday unveiled new rescue measures to help bring the economy out of recession, including tax cuts for small businesses, aid to encourage car purchases and a plan to reduce a huge stock of unsold new homes.

Jose Luis Rodriguez Zapatero, who presented the package before Parliament in the yearly State of the Nation debate, faced hostile opposition parties, with some lawmakers questioning the measures' benefits as well as the premier's credibility.

Announcing the latest of a string of rescue plans the government says has cost it €50 billion ($67.87 billion) so far, Mr. Zapatero sought to stay on the offensive on economic matters as his party prepares to go before voters in European Parliament elections on June 7.

"The government aims to give a new push to its action against the crisis. It will do so with a twin goal in the coming months: curbing job losses and preparing economic recovery with a new growth model," Mr. Zapatero said.

Spain was once one of Europe's biggest success stories with more than a decade of solid expansion. But the economy has soured dramatically over the past year or so, as a boom fueled by torrid housing construction and consumer spending collapsed.

Spain now has the European Union's highest unemployment rate, at 17.4%, and some forecasts say it will hit 20%. The government had officially forecast the economy will contract 1.6% this year but now says that figure will be even worse, while the International Monetary Fund says it will shrink by 3%.

To aid the housing sector, stuck with an estimated 650,000 unsold homes, Mr. Zapatero said the government wants to encourage purchases now by eliminating tax breaks for all but low-income earners starting in 2011.

After that, home buyers making more than €24,000 a year will no longer be able to deduct the interest they pay on their mortgage. The break will stand for those who bought homes before then.

The prime minister also announced €25 billion in funding to encourage environmental and sustainable economic development projects, aiming to wean Spain from its dependence on bricks and mortar.

In the auto sector, where Spain is Europe's third largest manufacturer although sales have plummeted amid the recession, Mr. Zapatero announced a plan to provide €2,000 in direct aid to people who buy new cars. Half would come from manufacturers, and Spain's central and regional governments will provide the rest.

Zapatero also said taxes will go down 5 percentage points for the next three years for companies that have 25 or fewer employees and do not lay off anyone in 2009.

The debate was to last through Wednesday, with opposition leaders also slated to speak. No vote on the new measures is planned yet.