The German Chancellor, Mr Gerhard Schroeder, and his Finance Minister, Mr Oskar Lafontaine, will step into the lion's den today when they visit the headquarters of the Allianz insurance company in Munich. Allianz chairman Mr Henning Schulte-Noelle is one of 22 top managers who wrote to the Chancellor to complain about his government's plans for reform of the tax system.

But Mr Schulte-Noelle went a step further by threatening to move Allainz's headquarters outside Germany unless the tax plans are reversed. The company is believed to be weighing up the attractions of Dublin and London as alternative homes for Europe's biggest insurers.

Other insurance firms are also considering such a move and Daimler-Chrysler are looking at a plan to create a holding company based in Amsterdam.

The magazine Impulse, which caters for the medium-sized businesses known as the Mittelstand, has collected one and a half million signatures against the tax plan and Germany's power companies are threatening to pull out of multi-billion mark projects.

Mr Lafontaine dismisses the companies' threats as sabre rattling and argues that his tax reform will relieve the burden on wage-earners and businesses alike.

All this lamentation is unfounded. We will push the law through, he said.

On the face of it, Mr Lafontaine is right to dismiss the managers' protest as special pleading. After all, the government has promised to cut taxes by DM20 billion (€8.05 billion) by 2002, one third more than initially planned.

But companies fear that the closing of a number of tax loopholes and the abolition of tax privileges on certain goods and services will have the effect of increasing their overall tax burden dramatically. Some manufacturers argue that abolishing some tax write-offs will make consumers worse off too, by pushing up the price of many goods.

According to Mr Lafontaine's plan, the proportion of the cost of a company car that can be offset against tax will be reduced - a change car manufacturers claim will amount to a seven per cent price increase.

The government is probably strong enough in parliamentary terms to ignore the complaints of business and push its reforms through regardless. But the managers who wrote to the Chancellor last week know that they have an important opportunity to influence the government through Mr Schroeder's flagship project, the Alliance for Jobs.

Made up of representatives from business, the trade unions and the government, the Alliance for Jobs is a forum aimed at producing practical policy initiatives that will cut Germany's jobless total by at least one million during Mr Schroeder's current term in office. Mr Schroeder knows that his government will stand or fall on his government's record on unemployment and he needs the help of business if he is to cut the dole queues.

Mr Schroeder makes no secret of the fact that he is out of sympathy with many of Mr Lafontaine's more robust attacks on business leaders and the chancellor has little time for the environmental sensitivities of his coalition partners in the Greens. But Mr Lafontaine is the chairman of the Social Democrats and, as such, is immovable as the Finance Minister.

The chancellor hopes to create in the Alliance for Jobs an alternative economic policy centre in the government, which could overturn tax plans and other policies if such a move was deemed necessary to fight unemployment.

The former chancellor, Dr Helmut Kohl, had a similar dream of creating an equivalent of the White House in Bonn that would take control of the essentials of foreign and economic policy. Dr Kohl's junior coalition partners in the Liberal Free Democrats made sure that the dream never became a reality and Mr Schroeder is unlikely to be any more successful.

But if the Alliance for Jobs is to succeed, business leaders must feel that they stand to gain from the changes proposed by the government. Economists estimate that almost two million new jobs could be created in Germany by 2002 through a combination of wage restraint, tax cuts and the liberalisation of the labour market.

The current issue of the business weekly Wirtschaftswoche cites Ireland's success as a model of how co-operation between business, unions and the state can turn the tide of unemployment. Firms such as Allianz are now warning Mr Schroeder that, if they can't beat competitors from elsewhere in Europe, they may soon be joining them.