Chancellor Mr Gerhard Schroder's government yesterday signalled it was ready to offer further tax cuts to German businesses in the wake of Mr Oskar Lafontaine's shock departure as finance minister.

The economics minister, Mr Werner Muller, a former business executive brought into government by Mr Schroder, said new measures to rid Germany of its reputation as a high-tax country should be agreed by the summer at the latest.

Mr Schroder's junior coalition partners, the ecologist Greens, backed Mr Muller's call for a single tax on corporate profits of 35 per cent from 2000 as long as the move, which is good news for most firms, could be financed.

In an interview with Stern magazine, Mr Muller said Bonn's priorities remained the same, but talk of a "fresh start" after Mr Lafontaine's resignation last Thursday was not misplaced.

"Since business has a lot to do with psychology, I've got no objections if the feeling of a fresh start emerges," he said.

"Germany has had among the highest taxes in the world until now. We have to change that to become more competitive."

He said measures should be agreed by the summer allowing corporate profits be taxed at a single rate of no more than 35 per cent, scrapping existing 30 and 45 per cent bands which apply to distributed and retained profits respectively.

The second stage of the government's "ecology tax" plan to use fuel tax rises to fund cuts in social security charges should also be agreed by then, he told Stern in the interview, which was released ahead of publication on Thursday.

Mr Muller pledged that checks and balances would be created to make sure no "unacceptable burden" would be placed on businesses by future ecology taxes, which are due from this April to lead to higher levies on petrol and other fuels.

Mr Lafontaine's decision to quit politics came amid a mounting confrontation between Mr Schroder's centre-left government and German industry over economic policy.

Industry leaders said Mr Lafontaine's tax reform, the first stage of which is likely to approved by the upper house of parliament this Friday, damages business by closing off valuable tax loopholes currently used by many German firms.

Some of Germany's largest companies, including insurer Allianz and utility giant RWE, have threatened to relocate if the tax plans are not altered.

The single profits tax rate of 35 per cent would go well beyond cuts offered by Mr Lafontaine, which include a lowering of the main corporation tax rate to 40 per cent from 45 per cent.

In a policy paper the Greens said they backed a unified tax rate of 35 per cent on corporate profits and supported further cuts to personal income tax.

The paper said further net tax cuts for businesses were "possible and desirable". But, it added, petrol taxes would have to rise further and federal aid to industry would have to be cut by 10 per cent a year to make the tax cuts possible.

Such "counter-financing" measures are, however, likely to be anathema to industry, which yesterday was already fine-tuning its campaign for more pro-business policies.

The German Industry Federation (BDI) chief, Mr Hans-Olaf Henkel, a noted opponent of Mr Lafontaine, said he could accept the original tax reform as long as it was followed up swiftly by separate measures to improve the lot of business.

But he said in an interview with the business magazine Wirtschaftswoche that a proviso for his support was that any future plans for ecology taxes be scrapped.