FACTBOX: Policy in the next German government

(Reuters) - Chancellor Angela Merkel's conservatives have won enough votes in Germany's election to form a center-right government with their preferred partners, the Free Democrats (FDP). Following are summaries of the policies likely to be pursued by such a coalition.

ECONOMIC/FINANCIAL POLICY

GENERAL - A smaller role for the state will be sought by the coalition, which could see the conservatives take on the finance ministry and the FDP the economy ministry.

TAXES - The coalition will push for lower income tax, though cuts seem unlikely to ensue immediately due to the budget deficit. Cuts are likely to be based on a compromise between the two sides' proposals. The FDP wants to introduce three main tax bands of 35, 25 and 10 percent compared to rates of 42, 24, and 14 percent effective from 2010. Merkel's conservatives plan to cut the bottom bracket to 12 percent and to raise the threshold from which income is taxed at the highest regular rate to 60,000 euros ($83,600) from 52,552 euros. The FDP opposes tax hikes, but the conservatives have explored the possibility of raising the reduced rate of VAT levied on certain items.

JOBS - The FDP has campaigned for labor market reforms that would make it easier for firms to hire and fire. However, Merkel has set herself against such a move.

BUDGET - Consolidation of the budget could involve cuts to subsidies. Reform of state healthcare funding could also benefit the public purse, which may get an additional boost if the coalition goes ahead with plans to relaunch a stalled partial privatization of national rail operator Deutsche Bahn.

FOREIGN POLICY

GENERAL: FDP leader Guido Westerwelle is expected to become foreign minister, with the conservatives likely to keep the defense portfolio.

EU ENLARGEMENT - The CDU/CSU believes the European Union should offer Turkey a "privileged partnership" that stops short of full membership in the bloc and is likely to push more aggressively on this issue if it seals a coalition with the FDP.

The FDP does not oppose Turkey joining the bloc but cites "major deficits" in Ankara's efforts to meet EU criteria.

AFGHANISTAN - Both the CDU/CSU and FDP support the German mission in Afghanistan, but members of both parties are keen to set a timetable for the withdrawal of German troops. The coalition would likely resist calls from the United States and other NATO partners for Germany to increase its troop presence or shift soldiers into combat in southern Afghanistan.

IRAN - All the parties support diplomacy in tackling Iran's nuclear program and this coalition would continue to participate in the six-power group dealing with Tehran and support U.S. President Barack Obama's offer of direct talks. It could push for stronger sanctions if Iran does not cooperate.

RUSSIA - This coalition could adopt a more critical line with Russia on human rights and Kremlin interference in corporate affairs, but would continue a pragmatic partnership on energy and economic issues.

U.N. REFORM - The FDP favors a single European seat on the United Nations Security Council and sees a German seat, supported by the CDU/CSU, as a second-best solution. Britain and France already have seats.

ENERGY POLICY

NUCLEAR ENERGY - All three parties see nuclear energy as a crucial part of the energy mix until renewables are able to generate sufficient amounts to replace them. The three parties would look to extend the lives of Germany's 17 nuclear plants, doing away with plans to phase them out by 2020. German companies could be required to give the state a share of profits generated by the extension. Sal Oppenheim analyst Matthias Heck estimated if German utilities RWE and E.ON operated their plants 15 years longer while turning over to the state 50 percent of the profits, the earnings gains could total as much as 9 euros per share for RWE and 4.2 euros for E.ON.

RENEWABLES - The commitment to renewables might not be quite so strong as under a government that included the SPD or Greens, but all three parties are committed to the long-term goal of raising the share of renewables. There has been speculation of an accelerated reduction in rates utilities are required to pay photovoltaic energy producers, but eastern CDU state premiers reliant on the fast-growing industry would likely oppose that once again.

CLIMATE CHANGE - A center-right government would likely take a more pro-business approach, refusing to set speed limits on national motorways or taking steps that would hurt the German car industry. The parties support a successor to the Kyoto Protocol and EU goals to reduce CO2 emissions.

(Compiled by Berlin and Frankfurt Newsrooms, editing by Mark Trevelyan)