Merkel's Christian Democratic Union (CDU) had positioned itself as the party of fiscal responsibility and thrown its support behind an effort to balance the government's budget by 2011.

That was before the global financial crisis put the breaks on Germany's export-driven economy.

Now, Merkel has said she will push for further changes to the country's tax laws, even if it means larger federal deficits.

"A tax reform with tax cuts is part of our offer in the election program," the chancellor said at a gathering of CDU members in Berlin on Saturday, Jan. 3.

To tax or not to tax?

Yet the tax issue remains a bone of contention among conservatives, who are preparing for a federal election in September. Opinion polls show Merkel's conservatives well ahead of the Social Democratic Party (SPD).

Some CDU members have expressed worry about deficits which will be caused by the government's 50 billion euro ($64.24 billion) stimulus package.

The stimulus package includes a modest 2.9 billion euros for tax relief measures for 2009 and 6.05 billion euros in 2010. It also includes infrastructure investment in roads, railways and schools.

Merkel had originally fought keep tax cuts out of the economic stimulus package, saying that it would hurt the government's budget. But she eventually bowed to pressure from Bavaria's Christian Social Union (CSU), which partners with the CDU in parliament, to go along with the cuts.

But Merkel promised that "the discussion is not yet over" when it comes to tax reform.

Critics remain unconvinced

Yet there are still plenty of critics within the party. Peter Mueller, CDU premier of the western state of Saarland, spoke out in an interview published Sunday against tax cuts, saying the recent stimulus packages made them unaffordable.

Other senior CDU members, including Interior Minister Wolfgang Schaeuble, have also publicly voiced concern about going ahead with cuts.

The ongoing disagreement led the CDU's Volker Kauder to call for better party unity in the Frankfurter Allgemeine Sonntagszeitung on Sunday. The party is planning to develop a new tax plan by Easter. Until then, "we have agreed to not publicly debate the issue," he told the newspaper.