Germany working on new fiscal stimulus package

Germany working on new fiscal stimulus package Berlin - Amid a dispute over tax cuts, German Chancellor Angela Merkel's ruling coalition prepared the groundwork Monday for a new economic stimulus package designed to protect Germany from recession.

A key element of the talks between Merkel's conservative Christian Democrats (CDU) and her Social Democrat (SPD) partners was how to secure jobs and increase investments, the chancellor said.

The package, which could amount to between 40-50 billion euros (55-69 billion dollars) over the next two years, is expected to include investments in schools, public works and energy efficiency.

With general elections looming in September, the two sides went into the talks with different ideas on how to shield Europe's biggest economy from the global economic downturn.

Although both parties agreed on the need for greater investments, the CDU favours a plan that includes income tax cuts to spur domestic demand, while the centre-left SPD is against such a move, arguing for lower health insurance contributions instead.

Merkel's government unveiled its first stimulus package in November, which totalled about 31 billion euros. Experts said this was not enough to revive the economy because it included only about 12 billion euros in new spending.

Government spokesman Ulrich Wilhelm said a formal decision on the new package would be taken at another meeting of coalition leaders on January 12.

The CDU and its Bavarian sister party, the Christian Social Union, agreed at a separate meeting on Sunday evening to make tax cuts a central plank of the new stimulus measures.

The SPD, which unveiled its own 40-billion-euro package on Sunday, wants the creation of special investment fund for community projects as well as higher taxes for the nation's top earners.

Other measures under discussion are a bonus for families with children, increased payments for reduced hours and incentives to help Germany's ailing car industry.

Despite their differences, the two sides are expected to hammer out a compromise in the coming week, senior officials from both parties said Monday.

"Everybody knows we cannot afford to let the stimulus package fail," said Foreign Minister Frank-Walter Steinmeier, the SPD chairman who will be challenging Merkel for the chancellorship when the nation goes to the polls on September 27. (dpa)

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