Government leaders agreed at a meeting in Berlin on Sunday to water down a previously-announced plan to slash the rebate that energy-intensive industries currently enjoy on an environmental tax.

Under a savings package agreed to earlier this year, Angela Merkel’s centre-right coalition government had announced it would quickly phase out the rebate, which costs taxpayers about €1.5 billion a year.

Schäuble announced the change alongside Economy Minister Rainer Brüderle, after the ministers’ meeting in Berlin. News agency DPA reported that industry would be spared €600 million.

The coalition also agreed to simplify the tax system by 2012 and partly backdate the changes to 2011. That simplification could slash taxpayers’ burden by €500 million.

It would also mean tax returns must only be lodged every two years. The new tax plan contains about 60 proposals. Draft laws will be introduced to parliament in December.

Industry had protested fiercely against the scrapping of the environmental tax rebate. The new concession will deliver relief to small and medium-sized businesses.

Schäuble and Brüderle declined to give details as the the exact size of the tobacco tax hike. DPA reported the rise would take place in several – perhaps as many as five – stages.

The hike will be sufficiently steep, however, that it will also help finance the simplification of income tax.

The base rate at which the eco-tax relief is allowed will be raised from the current €500 to €1,000 – rather than the €2,500 previously planned. This would particularly help smaller firms, Schäuble said.

Firms will be allowed to have their eco-tax burden cut by up to 75 percent. Under the previous plan, they could have it cut by at most 80 percent next year but only by 60 percent in 2012. Previously they have been able to get it reduced by up to 95 percent.

DPA/The Local