New German Chancellor Angela Merkel strongly defended her government's program in Dusseldorf on Friday, vowing to slash labor costs.

Addressing the German Confederation of Skilled Crafts (ZDH), Merkel said that she intended to scale back German labor costs to where it stood about 16 years ago just after the Berlin Wall was pulled down, German news agency DPA reported.

Her government's plan to raise purchase tax from the current 16 percent to 19 percent in 2007 has drawn wide criticism, but she insisted that revenue from the proposed 3 percentage points' raise could help to offset the country's high labor costs.

She is planning to use about one third of the 8 billion euros ( 9.4 billion dollars) resulted from the January 2007 raise of purchase tax to lower non-wage costs to below 40 percent.

Listing high labor costs as the main problem facing Germany, Merkel vowed to eventually slash them to 36 or 37 percent of overall employment costs, though she admitted this could not be done during the four-year parliamentary term she is to head.

Source: Xinhua