By Michael Nienaber
BERLIN (Reuters) - German Finance Minister Olaf Scholz wants to support companies that are investing in research and development (R&D) by granting them annual tax breaks of at least 1.5 billion euros (1.3 billion pounds), two people familiar with the matter said on Thursday.
As Europe's largest economy shifts into a lower gear, the government faces calls to boost fiscal stimulus and help companies that are struggling with weaker foreign demand, rising trade tensions and increased competition from abroad.
Scholz, a member of the centre-left Social Democrats (SPD) who are junior partners in Chancellor Angela Merkel's coalition government, wants to focus the planned R&D tax breaks on small- and medium-sized firms, the two sources said.
His proposal would cost the government roughly 1.5 billion euros a year, they said.
Economy Minister Peter Altmaier and Science Minister Anja Karliczek, both conservatives, have rejected the proposal as too small, the sources added.
The ministers want more companies to benefit from the proposed tax breaks, increasing annual costs to 3.5 billion euros, the sources said.
A Finance Ministry spokesman said that talks between the ministries were still ongoing and there was no final decision about the sum. He added that the tax breaks at the end could be worth more than 1.5 billion euros.
An Economy Ministry spokesman declined to comment, saying talks were still ongoing.
Altmaier has said the cabinet should pass the draft law in the first half of this year so parliament can start to debate the proposal before the summer holidays.
Otto Fricke from the business-friendly Free Democrats accused the coalition parties of dragging their feet.
"Instead of getting their act together, the ministers are getting lost in the blame game. And this at a time when the economy is cooling and we actually need more investments in research and development," Fricke said.
(Reporting by Michael Nienaber; Editing by Kirsten Donovan and Lisa Shumaker)