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German Finance Minister Wolfgang Schaeuble and Chancellor Angela Merkel attend a meeting at the lower house of parliament Bundestag on 2017 budget in Berlin, Germany, September 6, 2016. REUTERS/Stefanie Loos

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By Michelle Martin

BERLIN (Reuters) - German Chancellor Angela Merkel's conservatives are moving to slash taxes as they lose support to an anti-immigrant party, but any boost they are hoping for in a 2017 federal election may be limited as taxes are not voters' main concern, analysts say.

Finance Minister Wolfgang Schaeuble, a member of Merkel's conservatives, told lawmakers on Tuesday the government could cut taxes by around 15 billion euros after next year's election. He said he would aim to reduce the burden caused by "cold progression" or "bracket creep" by around 2 billion euros.

"We are currently in the process of quickly implementing the tax relief that the minister announced in his speech on the budget on Tuesday," a spokeswoman for the Finance Ministry told a news conference on Friday.

She said the aim was for citizens to start benefiting from the relief next year, but added that she could not give details of the exact time frame.

The United States and Germany's European Union partners have long urged Germany, which is flush with cash and has been running budget surpluses since 2014, to cut taxes to boost growth.

Merkel told Funke Mediengruppe on Friday that her government had done a good job with its budget so Germany could reduce taxes despite the many other tasks the country faces - a reference to costs associated with the hundreds of thousands of migrants who arrived last year.

Her open-door refugee policy has hit her popularity. A survey by TNS Forschung for German magazine Der Spiegel showed that 82 percent of Germans wanted Merkel to change her refugee policy, while only 15 percent think she should stick with it.

In a state election on Sunday, the anti-immigrant Alternative for Germany (AfD) beat her Christian Democrats (CDU) into third place - an embarrassment that she has conceded was due to her party's pro-refugee stance. The AfD also looks set to do well in a vote in Berlin on Sept. 18.

Christian Odendahl, chief economist at the Centre for European Reform, said announcing tax cuts would probably boost the CDU's popularity somewhat, but he warned that the upside potential of such a move would likely be limited.

"It's not as if those who are feeling frustrated, detached or insecure – the people voting AfD – are voting AfD because their tax is high, so I don't think it will be very effective," he said.

"It seems to me rather the opposite – that investment in integration of refugees and maybe even security apparatus and the police force would be a better way to spend that surplus if you want to contain the AfD's rise," he added.

Gero Neugebauer, a political scientist at Berlin's Free University, said that the conservatives were trying to win a more positive perception of themselves with the tax cut announcement but that he did not think it would help much because taxes were not people's main concern now.

Indeed, asked in a recent survey for broadcaster ARD what the government should do with the budget surplus it expects to achieve this year, only 16 percent of Germans favoured tax cuts.

Instead, 58 percent said they wanted the extra cash to be used to boost investment such as on infrastructure and 22 percent said Germany should use the money to cut its debt pile.

Odendahl said the survey showed that announcing tax cuts now would probably not generate the kind of popularity boost it might have done at other times.

Schaeuble told the lower house of parliament on Tuesday that he planned to correct "cold progression", or bracket creep, in the tax system from January 2017, freeing up around two billion euros.

The thresholds in the progressive-tax system are not automatically adjusted for inflation, so recipients of a pay rise can find themselves ending up with a net pay cut.

Bild newspaper reported on Friday that Merkel's cabinet would agree to Schaeuble's plans at a meeting on Wednesday, but it cited the Economy Ministry as saying it had not received the Finance Ministry's plan.

The Finance Ministry spokeswoman said the plans to raise the basic tax-free amount and tax-free child allowances and to correct cold progression were being agreed by the ministries. She said the parliamentary groups of the parties had held discussions on the issue.

It is still unclear whether the cabinet will approve it. Economy Minister Sigmal Gabriel, a member of the Social Democratic Party that is the junior partner in the ruling coalition, rejected Schaeuble's tax-cut plans on Tuesday and said Germans would rather the government boosted spending on schools, pensions, police and health care first.

(Additional reporting by Andrea Shalal; Editing by Hugh Lawson)

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