The Government is expected to widen tax bands in next week's Budget as part of a move to have them index-linked to inflation.
Following complaints that inflation-related wage increases were pushing lower-paid workers into higher tax bands, Minister for Finance Brian Cowen is now expected to address the issue.
During the weekend Taoiseach Bertie Ahern gave the clearest indication to date that the problem of inflation and tax bands would be addressed.
In a newspaper interview he ruled out any major tax cuts, but said the Budget "would look at the indexation of tax bands".
In a speech in Cork yesterday Mr Ahern also indicated that next month's Budget would focus on more marginalised groups, and would try to tackle child and pensioner poverty.
"It is important that the less- well-off are looked after generously and that our resources should go to those who want and need to do better," he said.
His comments come amid increasing speculation about the measures that will be contained in the Budget, which will be delivered on December 7th.
The Government has already indicated it will be producing large packages for both childcare and care of the elderly in the budget. The Irish Times understands that there have been detailed discussions between Mr Cowen and a number of Ministers on the packages over the past few days and discussions will continue into this week.
The combined value of both packages is expected to exceed €2 billion, with the childcare provisions expected to be rolled out over a period longer than a year.
Department of Finance sources indicated last night that open-ended tax schemes were being looked at. The Sunday Business Post reported yesterday that the Government would address a tax loophole which allows unlimited levels of tax relief for pension contributions by some company directors.
It is expected Mr Cowen will place a cap on the amount of tax relief company directors can claim on pension contributions they make but sources said there was a lot of speculation about the contents of the budget and closing off the loophole could be one of a number of changes to the tax code. The final details on various aspects of both packages have yet to be concluded, but there is considerable concern among Government Ministers that the childcare package is not seen as favouring working mothers above those who decide to stay at home.
There is also division over the best methods to improve childcare funding, with some Ministers opposed to increasing child benefit payments unless they are means-tested.
Mr Cowen is also expected to scrap a number of the tax incentive schemes, including those for hotels, holiday homes and rural renewal in certain areas.
These schemes were all due to end next year, and Mr Cowen is not now expected to extend them.
The tax-free status of stud fees will also be addressed in the Budget, after the European Commission warned the Government that the 36-year-old scheme was illegal. It is expected to be replaced with another tax allowance scheme, which is expected to be capped at a certain level.