A senior ally of Chancellor Angela Merkel has questioned her plans to promise German voters tax cuts from next year, exposing a deep policy rift within her conservative camp only months before a federal election.
Wolfgang Schaueble, interior minister and an influential figure in Merkel's Christian Democrats (CDU), said he saw little room for tax relief and, in a clear jibe at his boss, urged his party to "tell voters the truth" about the weak economy and strained state of German finances.
Several CDU state premiers had already criticised Merkel's plans to make tax relief a key plank of the party's election campaign programme, but Schaeuble's defiance is more significant because of his stature and role as a minister in her coalition.
"There is very little room for tax cuts and no one can say right now when the time will be right," Schaueble told the Bild am Sonntag newspaper. "New tax revenue estimates due later in May will show just how limited the scope for tax relief is."
Polls show Merkel's conservatives hold a lead of about 10 points over the centre-left Social Democrats (SPD), her awkward partners in Berlin's "grand coalition".
But CDU divisions over the tax issue could hurt Merkel, who saw her huge poll lead over the SPD dwindle in the weeks before the 2005 election, in part because she misjudged voters and named a controversial flat-tax advocate as a senior adviser. She had hoped to coast to re-election this time on her economic record and the promise of tax cuts.
But then the global financial crisis hit, plunging Germany into its deepest recession since World War Two and making the economic and fiscal gains seen during her first three years in office a distant memory.
Germany is expected to slash its tax revenue estimates for 2009 by close to 50 billion euros later this week. The lower revenues, combined with higher state spending to stimulate the economy and support the rising number of jobless, is expected to push the budget deficit to 3.9 percent of gross domestic product (GDP) this year and around 5 percent in 2010.
Unemployment rose in April to 3.46 million people, or 8.3 per cent of the workforce. Despite the reversal in Germany's fortunes and mounting concerns about the deficit, Merkel has stuck doggedly to her tax cutting pledge.
Her conservative allies in Bavaria, the Christian Social Union (CSU), and the liberal Free Democrats (FDP), with whom she hopes to form a coalition after the September election, both support tax relief. But members of her own party, which has a long tradition of fiscal discipline, are deeply sceptical about any measures that could rip new holes in Germany's budget.
Dieter Althaus, CDU premier of the state of Thuringia and a top Merkel ally in eastern Germany, also broke with her at the weekend, telling the Super Illu newspaper that his party has an obligation to be a guarantor of solid state finances. Sensing an opportunity, SPD Chairman Franz Muentefering pressed Merkel at the weekend to be honest with voters and spell out her tax cut plans in more detail. Until now, Merkel has been vague about how much she would cut and who would benefit.