German SPD says could back some tax relief

BERLIN, Jan 6 (Reuters) - Germany's Social Democrats (SPD) could support a rise in the tax-free salary allowance to boost the economy, but will not back other tax cuts planned by conservatives due to budget concerns, an SPD leader said.

Chancellor Angela Merkel's conservatives and her SPD coalition partners said after five hours of talks on Monday they had moved closer to agreeing a new stimulus package that could total 50 billion euros ($67.42 billion), but they remain divided over tax cuts.

The conservatives have proposed raising the tax-free salary allowance to 8,000 euros ($10,790) from 7,664 euros.

"I think we will support this," SPD parliamentary floor leader Peter Struck told ARD television on Tuesday. "Every taxpayer is benefiting from that."

But Struck said his SPD would not back other conservative proposals, including plans to eliminate so-called "cold progression", a process in which taxpayers are bumped up into higher tax brackets even when their real incomes have not grown.

This occurs in Germany because tax brackets are not automatically adjusted for inflation.

"(Such measures) will not be possible because it would mean 25 billion euros in additional costs. That would without a doubt lead to a breaching of the (European Union's) Maastricht criteria. We don't want that," he said.

The coalition partners have said they hope to come to a decision on the new package next week. Merkel had initially opposed tax relief measures until after September's federal election, but changed her position on Sunday under pressure from her Bavarian conservative allies.

The plans have been criticised by opposition politicians, who have worried openly that they could lead to a busting of the Maastricht rules, which set limits for countries' national debt and deficits.

Merkel's government has worked hard to get Germany's finances in order over the past three years, bringing the overall public sector budget into balance.

Struck said Germany would not breach the rules this year but could "scratch the limit" in 2010.

Merkel's government pushed through a 31 billion euro package late last year but critics have dismissed it as too small.

The stakes in the stimulus debate are high for both coalition partners, with several regional elections to take place in Germany this year as well as the federal election.

(Reporting by Kerstin Gehmlich, editing by Mark Trevelyan)