Berlin - Germany is to re-introduce billions of euros in income-tax relief after the nation's highest court ruled Tuesday that Chancellor Angela Merkel's government had unconstitutionally altered a tax exemption.

The Federal Constitutional Court in Karlsruhe ruled that tax relief on the cost of travelling from home to work and back must be applied equally to all taxpayers.

In a major and unpopular budget-cutting move, the government had limited the exemption since the start of 2007 to people travelling to worksites 20 kilometres or more from home.

For every kilometre of distance above 20, they could claim 30 euro cents a day in relief. At 22 kilometres, for example, they could claim 60 cents daily. But those living closer to their place of work could claim nothing.

In Berlin, the Finance Ministry said it would hand back an estimated 3 billion euros to as many as 20 million commuting taxpayers in the first three months of the new year, repaying relief they were denied in 2007 and 2008.

A spokesman said the ruling would cost the government a total of 7.5 billion euros (9.7 billion dollars) for the years 2007 to 2009, but Berlin would not try to increase tax income at some other place to make up for it.

The ministry said the pre-2007 rate of relief would apply again from the start of next month.

Analysts said the rollback would put more money into millions of Germans' pockets and the government was likely to argue that this would have a stimulating effect on the recession-hit economy.

In a 6-2 ruling, the court affirmed the government was free to reduce the amount of the relief.

But the six majority judges said the constitution did not permit the government to discriminate without a "factual" reason against people who lived 20 kilometres or closer to their place of work.

They said the need to reduce government outgoings by 2.5 billion euros annually to balance the budget was not factual in this sense. (dpa)