Germany says it expects its biggest tax surplus for half a century as the economy once derided as the "sick man of Europe" reaps the benefits from buoyant growth and moderate reforms.

The finance ministry said the tax surplus would come to 179.2 billion euros ($241.6 billion) by 2011, according to new figures.



The federal government's predicted fiscal surplus, or excess of tax revenue over expenditure, is expected to amount to 87 billion euros by that date. The rest of the stated figure is made up of the expected surpluses of the country's 16 regional states and social security services.



The projected figure for 2011 represents the biggest tax revenue surplus since the Federal Republic of Germany was founded in 1949.



Germany economy revs up



It also provides the latest proof that Germany is reaping the benefits of limited but unpopular labor market reforms that began to take effect under the former government of Chancellor Gerhard Schröder.



The projection confirms that the German economy, the biggest in the eurozone, is recovering fast and regaining its position as the driver of European Union growth.



From 2002 to 2005, Germany exceeded European Union rules that it helped to draw up and which obliged governments to keep their budget shortfalls below 3.0 percent of gross domestic product.



But after years of lethargic progress, Germany's economic momentum increased sharply and its deficit shrank to 1.7 percent of GDP last year. And the government is hoping to cut the ratio further to 1.2 percent in 2007.



Differences over how best to use surplus



The left-right coalition government in Berlin appears divided on how best to use the tax surplus.



Economy Minister Michael Glos, a member of Chancellor Angela Merkel's Christian Democrats, favors tax cuts but Finance Minister Peer Steinbrück, a Social Democrat, is opposed to such a step.



Steinbrück would prefer to use the surplus to balance the German budget and reduce the national debt.



"This is a historic development, we can at last begin to reduce the mountain of debt that has accumulated and which stands at more than 1,500 billion euros," Steinbrück said.



In the meanwhile, several other ministers are calling for the surplus to be used to fund projects in their portfolios.



Steinbrück gave assurances that the government planned to invest two billion euros a year in key areas such as "education and research, the family, environmental protection, infrastructure, development aid and internal security."



In a breakdown given by the ministry, the total fiscal surplus is forecast at 20.3 billion in 2007 euros and at 47.9 billion euros next year.