THE GOVERNMENT has decided that all workers earning less than the minimum wage of €8.65 per hour or €17,542 per year will be exempt from the scope of the new 1 per cent income levy announced in the Budget.
However, Government sources said that to compensate for the expected loss of €60 million in revenue, those on higher incomes could have to pay more under the levy.
Government sources said that the current proposal to charge a 2 per cent levy on those earning more than €100,000 could be "tweaked" as part of the Finance Bill to be published next month.
There was speculation last night that this could involve either a lowering of the threshold at which the 2 per cent levy was applied - currently €100,000 - or a small increase in the rate, to generate €60 million.
Taoiseach Brian Cowen told the Dáil that the Government was making the change to exempt the low paid from the scope of the levy "in the context of the importance we attach to social partnership and to the draft new national pay deal agreed last month".
The Irish Congress of Trade Unions (Ictu) met Mr Cowen last Friday and argued that the application of the 1 per cent levy on all incomes would effectively eliminate the benefit of the additional half per cent increase provided in the new pay deal for those on low pay.
Ictu general secretary David Begg also warned that there was a real risk of the proposed deal being rejected by trade union members if they used their votes in ballots currently under way as a referendum on the Budget.
The executive of the country's largest union, Siptu, is to decide its position on the proposed pay deal today.
It deferred making a decision on the issue last week to allow for the meeting between trade union leaders and Mr Cowen on the Budget to take place.
Mr Cowen said that it was "out of our respect for and in view of the importance of assisting the social partnership process that the Government is indicating that it is prepared to provide that the levy will not apply to incomes up to the level of the national minimum wage".
"I do not have the figures in front of me, but approximately 850,000 workers are outside the tax net, some 36 per cent of the workforce," he said.
However, Mr Cowen also said that in the context of the Finance Bill, Minister for Finance Brian Lenihan would be ensuring that revenue is in line with the contribution that "this would make towards the social partnership process".
Ictu last night gave a "guarded welcome" to the Government's decision to remove workers earning less than the minimum wage from the scope of the 1 per cent levy.
However, Siptu said that it was "disappointed" that the exemption level was not raised to €11 per hour, or €23,000 per year.
Siptu said that this figure had been recognised by employers and Government in the proposed new national pay deal as a definition of low pay.
The trade union Unite said that while it recognised the Government's partial climbdown on the imposition of a universal 1 per cent levy on income, the move was "almost meaningless in the context of the other Budget measures affecting the lowest income families in the country".
Mr Begg said: "While we had sought a higher threshold - at €11 per hour as opposed to the €8.65 minimum wage - it is clear that this move will benefit those on the lowest incomes, who have been excluded from the tax net as a matter of public policy for some time now.
"Obviously, they should never have been targeted in the first place, and such an indiscriminate instrument such as the blanket 1 per cent levy should never have been considered, let alone introduced," he said.