Taoiseach Enda Kenny has refused to rule out cuts in child benefit in next month’s budget.

Amid speculation about proposals to cut €10 from the monthly allowance, Mr Kenny told the Dail this afternoon no decisions had been made.

"I'm not going to answer is respect of the Cabinet now and the final decisions it will make. Nor should I. But I obviously am aware of the difficulties for all Ministers in cutting back in a situation where these things are never easy," he said.

A whole range of issues across every Government Department “has been and is being examined”, he said, adding that the Cabinet will make its decision “over the next few days”

Ministers met today for the start of three successive days of meetings devoted to the budget this week. The Government is trying to make up the €3.8 billion adjustment required a process that has been described as “fraught” by one Minister.

Speaking in the Dail, Mr Kenny said  Minister for Finance Michael Noonan will propose not increasing sales or income taxes over the course of  Ireland's bailout programme after recommending a 2 percentage point VAT rise in next month's budget.

"The Minister will bring his proposal to government for a 2 per cent increase in VAT with no further increase for the remainder of the programme and no further increase in income tax for the remainder of the programme," Mr Kenny said. "The Government will make its decision in due course on that over the next few days."

On the way into the Cabinet meeting this morning, Mr Kenny denied there was tension between ministers in relation to proposed cuts. “The preparation of any budget, particularly if you have to take €3.8 billion out of the economy is always sensitive, is always difficult and is always unpalatable.

“It would be lovely to stand here and say everything is rosy in the garden, everything is not rosy in the garden and Government have a set of very difficult choices to make here and get the balance between the focus on jobs and job creation and the protection of those who are vulnerable.”

On his way into the meeting, Mr Noonan also denied rumours of a rift between Fine Gael and Labour or between the front and backbenches.

Minister for Social Protection Joan Burton yesterday pledged to oppose cuts to child benefits in accordance with the Labour Party's pre-election promise to protect them.

But Mr Noonan said that everyone involved is aware that all cuts so far discussed have been part of the Programme for Government. "Backbenchers are very loyal, they know the situation," he said. "Most of what's been discussed has been part of the Programmes for Government and part of the election campaigns."

Minister for Transport Leo Varadkar said this morning the 9 per cent rate of VAT that applies to restaurants, hotels and the leisure sector will remain for 2012. "We're in the in the run into budget now so there are intense discussions - we'll have a budget and of course its the Government's responsibility to deliver a budget," he told the Good Food Ireland conference in Dublin.

"Increasing taxes and cutting spending isn't something that any government wants to do. We do understand that people are struggling and we do understand that this will be difficult, but we can't afford to finance the state. That is the reality of the situation that we are in so we are going to have to have tax increases and we are going to have to have spending cuts."

In advance of today's meeting, a senior Government source confirmed that the child benefit cuts remained very much on the table despite other measures being excluded on grounds of being “unpalatable”.

The proposed cut, if included in the budget, would be potentially damaging to Labour which, during the general election campaign made no reduction in child benefit a red-line issue for any coalition with Fine Gael.

The cut in universal benefit was one of what was described as a “gamut of options” that was presented to Cabinet arising from the comprehensive review of expenditure overseen by Minister for Public Expenditure Brendan Howlin.

The proposal has survived preliminary scrutiny by the Cabinet notwithstanding Tánaiste Eamon Gilmore making the retention of child benefit rates a precondition for coalition. Some other measures considered as politically unpalatable have already been excluded from the budget.

Those measures considered too controversial politically included a reduction to jobseeker’s allowance, scrapping the bereavement grant - an €850 payment designed to offset funeral bills - and reductions in the half-rate carer’s allowance, paid to those who care for more than one person or who are entitled to other payments.

Other adjustments that look increasingly likely in next month’s budget include increases in capital gains tax and capital acquisitions tax; a small increase in motor tax; possible increases to Dirt tax; as well as a possible carbon tax of an extra €5 a tonne, which was a manifesto promise of both Coalition parties.

Child benefit represents 10 per cent of all Department of Social Protection expenditure. It is estimated that close to €2.1 billion will be spent on the entitlement this year. The monthly rate, for first and second children, is €140 a child. The benefit has been cut in the last two budgets.

Ms Burton has been examining ways to compensate those on low income if child benefit is cut. An advisory group established by her earlier this year to examine ways of mean-testing or taxing the benefit has concluded in a preliminary indication that taxing the benefit is not possible. Its full report is not due out until March 2012.

Ryanair chief executive Michael O'Leary yesterday called for the scrapping of the child benefit payment, saying people should not be "subsidised" to have sex. "This broad band of just giving everybody children's allowance – it's like the Government subsidising people to have sex. Now, I don't know about you, but I'm very happy to have sex for free, I don't need a subsidy for it," he said.