Germany’s governing SPD party has proposed raising income tax on high earners to fund a second, €40bn economic stimulus package, setting up a showdown with its coalition partner the CDU on how Berlin should best respond to the financial crisis.

In a 19-page paper leaked to German media on Sunday, Frank-Walter Steinmeier, the the chancellor-candidate and foreign minister, laid out his party’s plans to create a €10bn ($14bn, £9.6bn) investment fund to invest in kindergartens, schools and sports facilities.