"In the fall, we will have tax income forecasts and when we know them, we will decide before the end of the year on moderate tax decreases for low and medium incomes," Merkel said to Bild am Sonntag.
The chancellor said that the ruling conservative-liberal coalition had agreed in July on tax reductions that would take effect on January 1, 2013.
Germany holds general elections in 2013 and little indication had been given so far on the scale or type of tax cuts the government would propose.
Cutting taxes is a key policy of the junior coalition party, the Free Democrats, but Finance Minister Wolfgang Schäuble of the conservative Christian-Democratic party has resisted cuts believing that budget discipline should remain the priority.
Meanwhile, according to weekly Der Spiegel, Schäuble is about to revise the 2012 growth forecast to 2.0 percent, up from 1.8 percent previously.
"The economic rebound should continue in 2012," Schäuble wrote in a government analysis leaked to the magazine.
However, according to the report, finance ministry experts were surprised by the fall-off in consumer demand in the second quarter this year and doubt that growth will reach above 3.0 percent for 2011.
The German economy grew just 0.1 percent in the second quarter after a sharp gain of 1.3 percent in the first as the broader European economy slumped, caught up in the eurozone debt crisis.