Schäuble proposed cutting payroll and income taxes for low and medium earners in Germany on Tuesday as he kicked off a four-day budget debate in the Bundestag, Germany's lower house of parliament.

The conservative finance minister's draft budget for 2017 foresees expenditure of 328.7 billion euros, or 3.7 percent more than in the current year. In addition to higher state spending on welfare, more money will also flow into education and research, transportation, digital infrastructure, domestic security and defense. It marks the fourth consecutive balanced budget.

Schäuble, who has in recent years dismissed calls to cut taxes despite logging record-breaking surpluses, said he would also act to mitigate so-called "cold progression," or bracket creep.

Cold progression is said to happen when employees are pushed into higher tax brackets because their wages increase. At the same time, consumer prices also go up, leaving taxpayers with less money in the end. To combat this, policymakers could raise the amount of money a person has to earn before being placed into a higher tax bracket.

Wiggle room

On Tuesday, Schäuble said the German government had wiggle room of around 15 billion euros ($16.7 billion) to offer tax breaks without incurring any new debt.

He also said Germany would spare no expense on domestic security at a time when Germans' sense of security has been rattled by two acts of international terrorism on its soil this summer. The finance minister noted the Interior Ministry's budget for 2017 would reach around 8 billion euros for the first time.

The budget debate kicked off on the same day that the Munich-based Ifo economic institute estimated Germany's current account surplus would hit 278 billion euros in 2016, making it the world's largest. Exports already exceeded imports by about 140 billion euros in the first half of the year, according to Ifo economist Christian Grimme.

In light of the long-standing trade surplus - which is equal to around 8.9 percent of German GDP - governments in Europe and the United States have urged Germany to encourage more imports to help fuel global growth. In the past, Germany has rejected those calls, saying it had already done its part to lift domestic demand by introducing a national minimum wage in 2015.

cjc/pad (Reuters, AFP, dpa)