Leaders of Germany’s two largest parties announced plans to cut corporate taxation as they sought to get coalition talks back on track after a week marked by turmoil in both the Christian Democrat and Social Democratic parties.

The announcement of wide-ranging corporate tax reform by 2008 followed the resignation of Franz Müntefering, leader of the Social Democrats, and the withdrawal from the new cabinet of Edmund Stoiber, Bavarian premier, this week.

These moves had stirred fears that complex negotiations to form a SPD-CDU alliance were on the verge of collapse but officials from both parties told the Financial Times on Wednesday the talks would be completed on time by November 12.

“We are on schedule, but we do need to focus on policy issues, not personnel problems,” a spokesman for Angela Merkel, chancellor designate, said.

The SPD moved quickly on Wednesday to overcome its leadership crisis by nominating Matthias Platzeck, state premier of the state of Brandenburg, to be its new chairman.

Mr Platzeck’s nomination was due to be confirmed by the SPD’s executive committee last night. Chancellor Gerhard Schröder, who led the SPD from 1999 to 2004, said Mr Platzeck “was a good choice, and he will receive my full support”.

The corporate tax reform is set to include a cut in business tax by several percentage points from the current rate of 25 per cent.

Michael Meister, tax expert for the CDU, told the Financial Times Deutschland: “There will certainly be a broad corporate tax reform on January 1 2008, that’s clear”.

The reform is expected to scrap the current tax difference between smaller business partnerships, which pay income tax, and incorporated companies, which pay corporate tax on earnings.

Business leaders said the reform was welcome but should be introduced earlier than 2008.

In separate measures, the grand coalition government would encourage business investment by easing tax regulations on the depreciation of machinery and give tax breaks for private households that use craftsmen to do building work.

Politicians warned that an estimated €8bn-€10bn ($9.6bn-$12.1bn) in extra savings would be needed by 2007 to pay for such measures to boost Germany’s sluggish economic growth.

The coalition partners said last month that the closure of a budget gap of €35bn by 2007 would be their top policy priority. The step is required for Germany to comply with European Union budget rules.

■German seasonally adjusted unemployment fell more sharply than expected in October, dropping 36,000 to 4.801m, a rate of 11.6 per cent. Unadjusted unemployment fell 94,000 to 4.556m, the lowest level since last December.

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