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 coalition partner the CDU on how Berlin should best respond to the financial crisis.

In a 19-page paper leaked to German media yesterday chancellor-candidate Frank Walter-Steinmeier, 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. The party said this infrastructure programme would help protect jobs. Although most of the stimulus should be funded through new government debt, part could be financed by raising tax on high earners, Mr Steinmeier said.