Nov. 12 (Bloomberg) -- German Chancellor Angela Merkel's Cabinet will end tax breaks for car buyers earlier than previously announced in a bid to encourage more people to purchase vehicles as soon as possible to spur the economy in an election year.

Consumers who register cars before June 30 can take advantage of a suspension of taxes for two years for low- pollution vehicles and one year for dirtier models, government spokesman Thomas Steg said today at a Berlin news conference. The Finance Ministry had said Oct. 30 that buyers who registered new vehicles by 2010 should benefit from the tax breaks.

``Our goal is to provide the necessary incentive to people considering buying a new car to do it now,'' Steg said, noting that Germany's economy will face a ``particularly difficult situation in the next six months.''

Europe's biggest economy may not grow at all next year, the government's panel of economic advisers said today. At the same time, Merkel's ruling coalition parties face a national election. European car sales, hurt by turmoil in financial markets, fell for a fifth month in September, the longest stretch since 2005.

German-based carmakers, including Bayerische Motoren Werke AG, Daimler AG's Mercedes, and units of Ford Motor Co. and General Motors Corp., plan to reduce production by more than 200,000 vehicles by idling plants and extending Christmas shutdowns. Auto production in Germany fell 10 percent in October, according to the VDA manufacturers' association.

Responding to earlier tax-break proposals, lawmakers from Merkel's Christian Democrats and her Social Democrat coalition partners opposed unrestricted privileges and demanded better treatment for owners of fuel-efficient vehicles.

Euro 5 Cars

A ``special provision'' included in today's Cabinet agreement will exempt buyers of lower-polluting, so-called Euro 5 cars from paying tax in 2009 if they can prove they purchased before Nov. 5, 2008, according to Steg.

To encourage sales of new cars, the government would be better served by paying people to scrap old vehicles, said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at Gelsenkirchen University.

``No one will buy a new car only because that saves him 150 euros or 200 euros a year,'' Dudenhoeffer said in an interview, dismissing the proposals as ``nothing but burning taxpayers' money.''

While Germany puts forward national incentives, the European Union is examining support for carmakers as it prepares to impose caps on auto emissions of carbon dioxide, the main greenhouse gas. Any EU aid would follow $25 billion in low- interest loans that U.S. carmakers are set to receive.

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

Last Updated: November 12, 2008 11:09 EST