After Merkel's cabinet signed off on the 2012 budget on Wednesday, members of the Free Democratic Party (FDP) told daily Bild's Thursday edition that they may block progress of the budget deliberations, holding up spending plans for next year.
FDP finance expert Jürgen Koppelin told the paper: “The FDP will link decisions about the federal budget to tax cuts. Without the green light for tax relief for low and middle income-earners, agreement from the liberals (the FDP) on the budget will be difficult.”
FDP Bundestag member Frank Schäffler warned that Merkel's Christian Democratic Union (CDU) and their Bavarian sister party the Christian Social Union “must be clear: one only works with the other.”
Merkel's conservatives, notably Finance Minister Wolfgang Schäuble, generally feel there is little wriggle-room for tax cuts and that the more pressing issue is balancing the budget.
On Wednesday, Merkel's cabinet approved a budget that includes income tax relief, the main goal of which is to reduce so-called “cold progression” whereby rising incomes push people gradually into higher tax brackets, increasing their overall burden. The details were not released, however.
The approval included that of FDP leader and Economy Minister Philipp Rösler. But tax cuts are a totemic issue for the FDP and many of its MPs are thought to fear for their jobs unless the party can push through more tax relief.
The budget will also cut Germany's borrowing next year by about €4 billion to €27.2 billion in an effort to meet Schäuble's goal of reducing the deficit and Germany's federal debt.