Germany's Free Democrats - junior partners in Chancellor Merkel's government - have proposed 16 billion euros worth of tax cuts likely to deepen divisions with Merkel's Christian Democrats.
Westerwelle insists his plans for tax cuts make financial sense
Germany's Free Democrats are determined to make good on their election promise of wide-reaching tax cuts despite opposition from their coalition partners, Chancellor Merkel's Christian Democrats.
At a two-day party convention in the western city of Cologne, Foreign Minister and head of the liberal party, Guido Westerwelle, proposed 16 billion euros worth of tax cuts per year from 2012, aimed at supporting those who earn up to 53,000 euros ($71,000).
Taking a swipe at German finance minister and Christian Democrat Wolfgang Schaeuble, who is against tax cuts for budgetary reasons, Westerwelle said in Cologne:
"I cannot accept that in this country, as soon as the issue of tax relief is raised, immediately, people say, there's no money available."
Schaeuble, as well as many others in his party, point out that there is no money for generous tax cuts. Germany's public debt stands at some 73 percent of national income, which has seen Schaeuble take on record new borrowing of 80.2 billion euros in the 2010 budget.
Germany's budget has suffered during the recent financial crisis
According to a recent poll for public broadcaster ZDF, 61 percent of Germans agree with Schaeuble that the state of Germany's public finances makes tax cuts inappropriate.
But Westerwelle insists fair taxation and sound fiscal policies are "two sides of the same coin." Lower taxes help middle earners and small and medium-sized businesses, creating new jobs that will eventually boost tax revenues, according to the Free Democrats.
The Free Democrats party convention in Cologne comes ahead of crucial elections in North-Rhine Westphalia, Germany's most populous state.
The vote there is seen as an important test for Berlin. Both North-Rhine Westphalia's and the federal governments are made up of a coalition of Christian and Free Democrats. A defeat in North-Rhine Westphalia on May 9 could not only cost the government the majority in Germany's upper house, it would also likely be seen as a wake-up call for Merkel and her coalition partners.
Editor: Nigel Tandy