(Bloomberg) -- Chancellor Angela Merkel is considering ending a tax introduced to help aid Germany’s formerly communist east that reaped her govt 15 billion euros ($16.7 billion) last year.

The so-called solidarity surcharge on income and corporate tax could be phased out in stages beginning in 2020, Finance Ministry spokesman Martin Jaeger said Wednesday in Berlin, citing one of two options under discussion.

The levy was introduced in 1991 to help pay for German reunification, support the newly democratic states in eastern Europe and cover the costs of the first Gulf War.

Shrinking the surcharge over time would end a conflict in Merkel’s Christian Union bloc over how to terminate the levy without tearing holes in the federal budget or breaking a campaign pledge to not raise taxes. Germany’s taxpayer lobby says there’s no justification for the levy, which was never earmarked exclusively for the rebuilding of eastern Germany even though that was used as a reason to gain public support.

“Politically it has always been argued that this special tax is a particular sacrifice for the reconstruction of the East,” Reiner Holznagel, head of the BdSt taxpayers’ lobby said in an e-mailed statement. “Citizens mustn’t be expected to pay this special tax beyond the target originally set out.”

Discussions on the levy’s future are entwined with the expiration of a separate agreement expiring in 2019 that provides special funding for the eastern states. The Finance Ministry is concerned that the pact’s end will prompt the country’s top court to rule a continuation of the solidarity surcharge illegal.

Funding Overhaul

Incorporating the current surcharge into the income tax system is the second option under discussion, though that would hand the country’s 16 states some of the proceeds.

Any decision on the solidarity surcharge is linked to broader negotiations on what may be the biggest overhaul of German federal-state financing since the end of World War II. The states face pressure to follow the federal government’s lead and balance their books by 2020 under caps on public spending, known as the debt brake.

The chancellor takes a “positive” view of terminating the surcharge gradually as part of a future package that takes account of the states’ financing needs, Christiane Wirtz, Merkel’s deputy spokeswoman, told reporters in Berlin today.

A paper compiled last year by Finance Minister Wolfgang Schaeuble and Hamburg Mayor Olaf Scholz proposed redirecting revenue from the solidarity surcharge to subsidize states’ interest payments. Proposals for a revamp of federal-state finances will be discussed at a meeting between Merkel and state leaders on June 18.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Chad Thomas