German Finance Minister Wolfgang Schaeuble hinted that taxes may have to rise to consolidate Germany's finances one day after coalition sources said the government may scrap a discounted sales tax on some products.
The real task lies in saving as much on spending as possible, Schaeuble told newspaper Bild am Sonntag, in remarks released on Saturday, one day before the paper is published.
But if you abolish tax breaks some will say that's a tax increase. At the end of the day it's about having a sensible and balanced policy. And let's bear in mind that cuts on social spending hit those in the country with less money.
I'm not discussing any individual measures at the moment, but I'm not ruling them out either, he added.
Chancellor Angela Merkel's center-right government is now considering raising value-added-tax (VAT) to the full rate of 19 percent on certain items that currently benefit from a lower rate of 7 percent, the coalition sources told Reuters on Friday.
Though Germany's budget deficit is not expected to be as big as those in many euro zone countries this year, it is still seen exceeding five percent of gross domestic product in 2010, significantly above the European Union's cap of three percent.
A string of EU nations including Greece, Spain, Italy and Britain have recently unveiled budgetary consolidation measures aimed at putting public finances on a more sustainable footing.
From 2011, Berlin must take into account a new debt brake law requiring the government to cut the structural deficit and reduce the fiscal deficit to a limit of 0.35 percent by 2016.
Weekend reports suggested the government was weighing up a whole range of options on how to consolidate the budget.
German weekly Focus said members of Merkel's conservative bloc were considering levying a tax on aviation fuel, and that the transport ministry was exploring the possibility of extending a highway toll for trucks to include smaller vehicles.
Merkel's coalition partners, the Free Democrats (FDP), were also considering pushing for an end to a subsidy for new housing that they calculated could save the state around 2.4 billion euros in the years 2011 to 2014, the magazine said.
Separately, FDP lawmaker Volker Wissing, who heads the Bundestag lower house of parliament's finance committee, told daily Der Tagesspiegel his party did not want tax increases.
The FDP will not go along with an increase in income tax or VAT, he said. It was not clear whether Wissing meant the FDP also ruled out scrapping the discounted rate of VAT.
Bild am Sonntag said a reduced rate of VAT for hotels just introduced at the start of 2010 could also be abolished.
All tax discounts are being looked at, including those for hotels, the paper quoted an unnamed member of the coalition as saying.
(Editing by Jason Webb)