Following an inconclusive general election, conservatives under Chancellor-designate Angela Merkel are in talks with the social democrats (SPD) to agrees policies for a grand coalition government before a mid-November deadline.
Leading conservative and Hesse state premier Roland Koch told reporters that his Christian Democrats (CDU), their Christian Social Union (CSU) sister party and the SPD had reached an agreement to put a comprehensive corporate tax reform in place in 2008.
Separately, a source who participated in cross-party finance talks said the parties were near a consensus on raising VAT - a controversial move the CDU supported in its election campaign but the SPD had previously rejected.
The source said tax hikes were necessary to meet financing needs of up to 45 billion euros by 2007.
"Tax increases are the only solution," the source said. "A hike in the value added tax is as good as agreed." He said the parties were discussing hiking the VAT by up to two percentage points to 18 percent, but that it was uncertain whether that would be enough.
It was unclear whether any proceeds from such a hike would go to plugging holes in the budget or reducing payroll costs, as the CDU promised during the election campaign.