UPDATE 1-German govt denies report of early tax cut plans
* Report said govt to agree tax cut plan before state vote
* Polls show Merkel's centre-right coalition may lose vote
* Govt has pledged 20 billion of tax cuts in 2011
* Economy ministry says upturn should gather pace
(Adds quotes, background)
By Madeline Chambers
BERLIN, March 18 (Reuters) - Chancellor Angela Merkel's government on Thursday denied a newspaper report that it would announce potentially vote-winning proposals for tax cuts before a closely watched regional election in May which it could lose.
The Sueddeutsche Zeitung reported the government was planning a change in strategy and would present its proposals for tax reform before the May 9 election in the state of North Rhine-Westphalia (NRW).
"The reports are not accurate. The subject of tax will not be on the agenda at talks of the party leaders on Sunday," said government spokesman Ulrich Wilhelm in a statement.
The vote in NRW, Germany's most populous state, is crucial because it is the first electoral test for Merkel's centre-right coalition since it took office nearly five months ago.
Opinion polls suggest Merkel's conservatives and her pro-business Free Democrats (FDP) coalition partner could lose power there. That would be a blow to Merkel and rob her ruling coalition of control of the Bundesrat, the upper house of parliament.
The Sueddeutsche said party leaders, worried about looming defeat in the vote, were preparing to bring forward the tax reform plans and that the volume of cuts would be reduced from 20 billion euros to 5-10 billion.
"There is nothing to the report," said FDP German Economy Minister Rainer Bruederle, adding the coalition was sticking to its schedule of cutting taxes in 2011. His party had originally pushed hard for the relief.
The parties had in their coalition agreement pledged to introduce cuts of about 20 billion euros in 2011 if possible.
However, amid worries about the state of public finances in Europe's biggest economy, they agreed earlier this year to hold off making an assessment of the situation until mid-May when new tax revenue estimates will be available.
Merkel is due to meet FDP chief Guido Westerwelle and Horst Seehofer, head of Bavaria's conservative Christian Social Union (CSU), on Sunday for talks on policy.
The Economy Ministry said earlier Germany's recovery should gather pace soon after bad weather dampened economic activity in the first two months of the year.
"After the recovery in the German economy stalled in the final quarter of last year, it picked up again at the start of 2010," the Economy Ministry said in a statement.
(Reporting by Madeline Chambers; editing by John Stonestreet)
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