SCENARIOS-German coalition likely to take small reform steps

BERLIN, Sept 28 (Reuters) - Tax cuts top the agenda for Germany's new centre-right coalition but they will have to wait, while state aid for Opel will come under review and shelved privatisation plans could be dusted off.

Chancellor Angela Merkel's conservatives said on Monday they aimed to seal a coalition deal with the pro-business Free Democrats (FDP) within a month after winning Sunday's election. Following is an issue-by-issue look at the likely course the new coalition will take on economic policy.

TAXES

The FDP wants to slash taxes by up to 35 billion euros but a swollen budget deficit, which is expected to hit 6 percent of GDP or double the European Union limit next year, means the incoming government will have little room for manoeuvre and cuts will have to wait until at least 2011 [nBAT003180]. Senior conservatives are already telling the FDP not to make excessive demands in their coalition talks. However, if the FDP takes the finance ministry portfolio, that will give it the platform to push for selected tax cuts as soon as possible. These will likely focus on income tax, but inheritance tax could also be reduced to ease the burden on family-run businesses -- a group the FDP aims to represent. The coalition parties do not want to dent domestic spending by reining in the deficit, meaning the new government will likely be slow to move towards budget balance. On the international stage, Germany will drop its support for a financial market transaction tax. "That is dead now," said a senior government official.

LABOUR MARKET

Merkel does not want to abolish minimum wages that her outgoing government with the Social Democrats (SPD) introduced in some industries. However, the new coalition will probably not extend these to any more sectors. The FDP's campaign push for a loosening of rules on protecting workers from dismissal is likely to meet resistance from the conservatives, who do not want to lose an election next year in North Rhine-Westphalia, Germany's most populous state.

PRIVATISATIONS

The FDP signalled before the election that it wanted to sell off state holdings in banks in which the government recently invested to help them withstand the financial crisis. Rainer Bruederle, a possible FDP candidate for economy minister, told Reuters last month: "Exit strategies for the state to shed its stakes must be developed as quickly as possible." Candidates are Commerzbank (CBKG.DE) and Hypo Real Estate HRXG.DE. The coalition will also likely look at reviving plans to partially privatise Deutsche Bahn, which were dropped last October amid financial market turmoil. But again the FDP will not have it all its own way: the conservatives will adopt a more cautious approach to privatisations and a Deutsche Bahn sell-off is unlikely soon.

OPEL

FDP leader Guido Westerwelle has promised to review a pledge made by the outgoing government to give Opel 4.5 billion euros in state aid as part of its takeover by a consortium of Magna MGa.TO and Russia's Sberbank SBER03.MM. Other European countries with Opel plants that may be closed have also questioned the deal, which faces scrutiny from EU regulatory authorities, and the FDP would be unlikely to fight to save Opel with taxpayers' money. However, Merkel personally pushed hard for the Magna-led takeover and her conservatives will be the bigger party in the new coalition. "The CDU/CSU are still there. And they, like the SPD, committed before the election to a rescue of Opel. So I think it is unlikely there will be a U-turn on this point," said Commerzbank analyst Eckart Tuchtfeld. The EU Commission could, however, attach conditions to the deal.

(Additional reporting by Gernot Heller, editing by Mark Trevelyan)