German court backs gay couples' tax rights in setback to Merkel
* Constitutional Court says German tax law discriminatory
* German conservatives deeply divided on same-sex couples
* Merkel needs traditionalist support in Sept. 22 vote
BERLIN, June 6 (Reuters) - Germany's top court said on Thursday that gay couples are entitled to the same tax benefits as married heterosexuals in a ruling which threatens to deepen rifts within Chancellor Angela Merkel's conservatives just three months before an election.
The verdict requires a change in the law and is a red rag to some in Merkel's Christian Democrats (CDU) and its traditionally Catholic Bavarian sister party, the Christian Social Union (CSU), who worry that conservative values are being diluted.
The ruling was widely expected after the court in February overturned a ban on same-sex couples adopting a child already adopted by one of the partners.
"The provisions set out in the income-tax law violate the general rule of equality," wrote the Karlsruhe-based court, adding the law should be changed retroactively from Aug. 2001.
Same-sex partnerships have been legal in Germany since 2001 but do not enjoy the same tax benefits as married heterosexuals.
Gay rights have become a flashpoint in several countries. When France became the 14th country to allow same-sex marriage in May, conservatives and Catholics took to the streets.
The German court ruling was greeted by opposition Social Democrats (SPD) and Greens and by Merkel's junior coalition partner, the Free Democrats (FDP), as a signal for tolerance.
FDP Foreign Minister Guido Westerwelle, himself in a gay relationship, said the ruling showed the time had come "for German tax law to be as modern as its society".
CDU Family Minister Kristina Schroeder welcomed the ruling and said the law would be changed. But ahead of the September election, in which Merkel is seeking a third term, it could fuel dissent among conservatives who are deeply divided on the issue.
In March the CDU bowed to pressure from traditionalists and ruled out a change in the law despite pressure from some leading figures including respected Finance Minister Wolfgang Schaeuble.
Merkel, keen to avoid a pre-election showdown with the CDU and CSU's right wing which is losing atience with her centrist policies, has not come down on one side or the other in public.
To poach votes from the SPD she has abandoned conservative doctrines like conscription and nuclear power and adopted SPD ideas such as a minimum wage and strengthening tenants' rights.
"This decision was widely expected but I still don't think it's right," said CSU lawmaker Norbert Geis. "The sanctity of marriage is undermined."
Merkel, who still tops popularity polls, is likely to win reelection but may have to seek a coalition with the SPD instead of the FDP. Either way she needs the CSU, which makes up about 20 percent of her parliamentary bloc and will not take any risks before a Bavarian election a week ahead of the national vote.
The opposition attacked the government for flouting Germans' rights. "It's no surprise that the government's family and tax policy is unconstitutional as it is based on the homophobic, discriminatory views of Merkel's conservatives," said SPD general secretary Andrea Nahles.
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