Cuba unveils private sector expansion plan

HAVANA (Reuters) - Cuba's economic reforms began taking shape on Friday as the government said it would allow or expand private enterprise in 178 activities ranging from wine sales to massages to assure the survival of socialism.

Cubans will be able to open restaurants, repair homes and cars, train animals, rent out homes, give massages, provide transportation, work as clowns and open many other businesses, some currently prohibited by the communist-led government.

The plan, outlined in Communist Party newspaper Granma, said the government was considering providing bank credits to new entrepreneurs, who will be able to hire employees for the first time since small businesses were nationalized in 1968.

While the measures steal from capitalism, the key goal of the reform is to "defend, maintain and continue perfecting socialism" by increasing productivity, Granma said.

Self employment, it said, gives a worker "another way of feeling useful with his personal effort."

Cuba has said it will lay off 500,000 workers from state payrolls and, starting in October, issue 250,000 licenses for self-employment to help create private sector jobs for them.

Another 200,000 government jobs will shift over to employee-run cooperatives and leasing arrangements.

More than 85 percent of the Cuban labour force, or over 5 million people, worked for the government at the close of 2009, according to official figures.

The moves are the biggest so far by President Raul Castro as he tries to improve the troubled economy and, for the most part, are welcomed by cash-strapped Cubans tired of getting by on an average salary equivalent to about $20 (£12.6).

"Raul has done in a few years what Fidel should have done long ago," restaurant worker Luis Alberto Noa, 44, told Reuters, referring to former Cuban leader Fidel Castro.

But, he added, it will only be effective if the government "does not tax the new businesses too heavily."

A Cuban economist told Reuters he was optimistic about the island's financial future for the first time in years.

"The changes are all about increasing productivity, which is what we've been saying for years," he said.

TWENTY SEATS

Granma said private restaurants, known as "paladares," will be able to expand to 20 seats, up from the current limit of 12. Many popular paladares already ignore the 12-seat limit.

It also said homeowners who have permission to live outside Cuba will be able to rent out their homes while they are away.

The newspaper said the government was analyzing with Cuba's central bank the possibility of providing financial credits to help the self-employed get their businesses up and running.

Many are expected to get start-up money from relatives living abroad, especially in the United States.

Previously leaked Communist Party documents have said the self-employed will pay taxes ranging from 10 percent to 40 percent on their gross income, depending on their business, plus another 25 percent for the national social security program.

Granma said the taxes will increase government revenues and help achieve their "adequate redistribution."

Murillo said Cuba would have to beef up inventory in its stores, which are state-run, to meet demand for equipment and supplies for the new businesses.

He said eventually it would be good to have wholesale outlets but that will not be possible "in the next few years."

(Editing by Kieran Murray)