The Government is to consider introducing a new tax rate to provide a boost in take-home pay for middle-income earners, while limiting the gains for top earners.
The new rate, being considered for the December Budget, would ensure that the vast majority of workers would never reach the current top tax rate of 46 per cent. At present, around 40 per cent of workers pay at the top tax rate.
The proposal, which has been put forward by the trade unions, would square the difference between the commitments in the Programme for Government to cut tax rates and the unions' demands to target resources at lower and middle-income earners. The idea surfaced in initial contacts on a new national agreement.
It is possible that the new rate could be set at 40 per cent, the rate the Progressive Democrats and Fianna Fail have targeted for top-rate tax payers.
The key factor would then be to decide the level of salary the new middle rate would apply to, and the level of earnings at which people would move to the top rate.
The Government could choose a scheme under which only the highest earners - those earning £75,000 or more, for example - would see any of their income levied at the higher rate, now 46 per cent. If it set the upper limit for the new middle rate at £50,000, the top 5 per cent of taxpayers would see some of their income levied at the higher rate, but would still benefit as a large chunk of their income currently levied at 46 per cent would be taxed at the lower middle rate.
If the limit were set at £30,000, more than 10 per cent would be left at the higher rate, while if it were set at £20,000, 37 per cent of people would pay at the top rate.
Indications are that when talks start on the new national agreement later this year, profit-sharing for employees in companies and flexible working arrangements will also be on the agenda. Significant increases in child benefit will also be considered.