Nov. 12 (Bloomberg) -- German Chancellor-designate Angela Merkel's goal of creating jobs in Europe's largest economy may be thwarted by plans to raise the nation's value-added tax, the head of the government's panel of economic advisers said.

Merkel's new government, due to be sworn in by parliament on Nov. 22, wants to lower jobless insurance premiums, half paid by employers and half by staff, to 4.5 percent of gross pay from 6.5 percent in 2007. That may help create 300,000 new jobs, Ronald Pofalla, a Christian Democrat lawmaker, told reporters yesterday.

Merkel, 51, and Social Democrat leaders yesterday finished work on a joint coalition accord that includes a higher value- added tax from 2007 and steps intended to spur investment. Incumbent leader Gerhard Schroeder, 61, leaves Merkel with 11.6 percent unemployment and an economy that has grown less than 1 percent in three of the past four years.

Merkel said yesterday her government will raise the 16 percent value-added tax by 3 percentage points to 19 percent from Jan. 1, 2007, using a third of the additional revenue to cut jobless insurance premiums and the remainder to help plug the budget deficit.

Ruerup called the VAT increase ``problematic'' and said the benefits of lower social security costs could be further dimmed if labor unions seize on higher taxes to press home demands for pay rises. Germany's IG Metall, Europe's biggest union, said on Nov. 10 it will seek ``significant'' raises next year for its 3.2 million metal, electronics and car workers.

European Central Bank council members have stepped up their anti-inflation rhetoric in recent weeks, saying the bank is ready to raise rates if oil prices lead to higher wage demands and price increases, or so-called second-round effects. The ECB has kept its benchmark lending rate at a six-decade low of 2 percent for more than two years.

ECB council member Klaus Liebscher said in an interview Nov. 10 he has become ``more concerned about inflation in recent months.'' The bank ``can always bite'' to fend off growing risks to inflation, which has stayed at or above the ECB's 2 percent limit every month since February.

This is cache, read story here