Germany's six main economic institutes yesterday predicted the country's public sector deficit would fall much faster than Berlin expected and said taxes could be cut much faster as a result. The government's target of reducing the public deficit to 1 per cent of national income in 2002, as set out in Germany's "stability" programme, would almost be achieved in 2000, the six institutes forecast in their autumn report.

A deficit of 1.7 per cent in 1998 would fall to 1.4 per cent this year, and to 1.2 per cent in 2000.

The institutes suggested a net tax "giveaway" worth 50 billion deutschmarks (#12.8 billion) a year would be possible. In particular, the top rate income tax should be reduced from a planned 48.5 per cent to below 40 per cent, the said.

In their generally upbeat assessment, the institutes see no immediate need for the European Central Bank to raise interest rates but assume a half percentage point increase in the first six months of next year.

Growth is expected to rebound next year, with gross domestic product increasing by 2.7 per cent. German exports are expected to rise by almost 7 per cent