Dec. 1 (Bloomberg) -- Chancellor Angela Merkel said the German government will retain “all options” to tackle the worst economic recession in 12 years, sweeping aside calls to cut taxes now rather than wait until after next year’s election.

“Germany will keep all its options open to combat the impact of the global crisis effectively,” Merkel said today in a speech to a convention of her Christian Democratic Union in Stuttgart. “I emphasize: all options.” At the same time, in dealing with the crisis the CDU “must have the courage to swim against the tide,” she said.

A meeting of her coalition will take place on Jan. 5 that will review the economic situation and “decide on further measures,” Merkel said. “What we won’t do is undertake a structural overhaul of the tax system to act as an immediate, short-term stimulus.” She has previously said an overhaul of taxes may take place after the September 2009 election.

The chancellor’s resistance to immediate tax cuts flies in the face of calls from industry, economists and sections of her own party to provide a fiscal stimulus to help the economy, Europe’s biggest, ride out the global recession. Retail sales unexpectedly fell in October, the Federal Statistics Office said today, suggesting a more severe downturn than first predicted.

Election ‘Promises’

“Merkel wants to keep her tax gifts as promises for the election -- that’s irresponsible and possibly even a grave mistake,” Thomas Mayer, chief European economist at Deutsche Bank AG in London, said in an interview. “The economy is faltering and she needs to stimulate private consumption, which has been stagnating for years.”

Bild, Germany’s biggest-selling newspaper, urged Merkel today to emulate Ludwig Erhard, “father of Germany’s economic miracle” after World War II and “save prosperity for all.” Lowering taxes “offers hope” to consumers and business, Bild cited Erhard as having said.

“The earlier the reform of taxes, the better for growth and jobs,” Economy Minister Michael Glos, from the CDU’s Bavarian sister party, the Christian Social Union, said in an editorial published today on the ministry Web site. He joins Merkel’s five independent economic advisers, or “wise men,” who called on the government in their annual report published Nov. 12 to stimulate the economy by increasing disposable income. They urged additional measures of as much as 1 percent of gross domestic product, or about 25 billion euros ($32 billion), on top of a 50 billion-euro program already agreed on.

‘Year of Bad News’

“Germany will continue to analyze the economic situation,” Merkel told as many as 1,000 delegates registered for the convention. “Since we know that 2009 will be a year of bad news, we will with our stimulus measures build a bridge for investment and employment, a bridge for our citizens and companies, ensuring that recovery takes place in 2010.”

The Social Democrats, Merkel’s coalition partners and rivals at next year’s election, also oppose tax cuts, arguing that the government should hold to its commitment to balance the federal budget.

“We should keep our gunpowder dry for now,” Foreign Minister Frank-Walter Steinmeier, the Social Democrat who will be Merkel’s opponent for the chancellorship, said in an interview today with the newspaper Handelsblatt. “I’m skeptical of taking a watering can and spreading benevolence across the country -- that goes for tax cuts for people who seem to be able to save enough already.”

British Measures

In Britain, Prime Minister Gordon Brown’s government last week reduced the U.K.’s sales tax to 15 percent from 17.5 percent to spur consumer demand. Merkel should follow suit with a temporary cut in value-added tax, a sales tax, to stimulate purchases of goods from cars to computers, according to Deutsche Bank’s Mayer.

“The U.K.’s move to cut VAT is the right in decision in the wrong country,” he said.

The coalition has abandoned a plan to balance the budget by 2011 after unveiling a 500 billion-euro bank-rescue program and its economic-stimulus package.

The government will not “lose sight” of its goal of a balanced budget, and will pursue the target in the next legislative period after the 2009 election, Merkel said.

Merkel, whose party faces a state election in Germany’s financial heartland of Hesse on Jan. 18, followed by three more state elections in August before the national vote in September, said 2009 will be a “super-election year.”

Even so, faced with the global economic crisis, “electioneering by the main parties is definitely on a low flame right now,” Hans-Juergen Hoffmann, managing director of Berlin- based polling company Psephos GmbH, said in an interview. “The parties have to pull together and voters know this.”

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.

Last Updated: December 1, 2008 07:18 EST