SCENARIOS - Economic policy in the next German government

BERLIN (Reuters) - German Chancellor Angela Merkel is seeking re-election in a federal vote on September 27, and polls give her conservatives a sizable lead over their coalition partners and traditional rivals, the Social Democrats (SPD).

Merkel hopes to form a coalition with the business friendly Free Democrats (FDP), and the latest surveys give her enough support for such a centre-right alliance.

However, other ruling partnerships are possible, including a second consecutive "grand coalition," grouping Merkel's conservatives -- her Christian Democrats (CDU) and the Bavarian Christian Social Union (CSU) -- and the SPD.

Below are the most likely coalition scenarios and how they would likely affect German economic policy:

CENTRE-RIGHT ALLIANCE (CDU/CSU and FDP)

GENERAL - A smaller role for the state will by sought.

TAX CUTS - The two are likely to press for income tax cuts, especially if the economy recovers strongly in 2010. Corporate tax cuts may also happen if the FDP gets its way.

JOBS - Led by the FDP, there may be a push for labour market reforms making it easier for firms to hire and fire; these efforts will probably be tempered by the left wing of the CDU.

BUDGET - Budgetary consolidation will be a priority, with the focus likely to be on cutting public spending by attacking subsidies and trimming government bureaucracy. Further relief on the public purse could result from a reform of state healthcare funding. Relaunching a bid to partially privatise national rail operator Deutsche Bahn could bring in more revenue.

TAX HIKES - Raising a reduced rate of value added tax (VAT) on some items could be used to partly offset spending cuts or to repair public finances if the economy continues to struggle.

CDU/CSU-SPD

GENERAL - Another grand coalition would favour a bigger role for the state than CDU/CSU-FDP, though polls suggest the SPD will not carry as much weight in the next government.

TAX CUTS - Income tax cuts may be feasible, though the SPD will focus on lower earners, the CDU on middle-income families.

JOBS - Pro-business labour market reforms appear unlikely. Agreement on a minimum wage for additional sectors of the economy could arise if the SPD presses for a blanket wage floor.

BUDGET - Some deal on budgetary consolidation seems likely, with subsidies possibly a focal point. One target could be a tax break for commuters, which would save billions of euros if cut. A flotation of Deutsche Bahn would be less likely in this pairing as the SPD pledged to oppose it in the next parliament.

TAX HIKES - Raising the reduced rate of VAT could also be an option though the SPD favours higher taxes for top earners.

OTHER CONSTELLATIONS

The three other coalitions that are considered possible after the German election are a CDU/CSU partnership with the Greens, an SPD coalition with the FDP and Greens and, least likely, a CDU/CSU government with the FDP and Greens.

BUDGET - Among the three configurations, agreement on steps to cut public spending may be possible, though none are expected to have enough common ground to form stable coalitions.

TAX - Tax policy would be highly divisive in either of the coalitions involving the FDP, while the Greens especially have major differences with both FDP and conservatives over energy.

RED TAPE - Progress might be made on improving conditions for small businesses, with cuts to red tape a possibility.

(Writing by Dave Graham; Editing by Charles Dick)