Minister for Finance Brian Cowen has left open the possibility of agreeing to Progressive Democrat demands for a cut in the top rate of income tax after he said yesterday that such a move was "not mutually exclusive" from other taxation measures such as widening the tax bands.
His comments, which were an attempt to play down pre-Budget speculation, followed a statement by the Taoiseach on Sunday which indicated a cautious approach to Government spending next year.
It followed a special Cabinet meeting that day to discuss the Budget. Progressive Democrat demands for a cut in the top rate of tax from 42 per cent to 40 per cent were not discussed at the meeting, although talks on the issue between PD leader Michael McDowell, the Taoiseach and Mr Cowen are expected to take place in the next two weeks.
When asked about the PD demands, Mr Cowen said was not going to talk about the Budget, but added that all of the information from last year's tax returns had yet to be finalised, and that these figures would allow him to determine what tax package he will bring forward in next month's Budget.
"This month, November, is when a large amount of our tax revenues come in," he told journalists in Portlaoise, where he was attending a conference on alternative energy organised by the Irish Farmers' Association.
"This week alone, I think about 10 per cent of the revenue arrived, more in fact. So I have to look at the updated revenue figures and we are now moving into the Budgetary process.
"That helps me decide what tax package one can consider in the context of the out-turn."
Asked about potential tax cuts, he said: "I do not want to generate any speculation . . . When people talk about taxation, increasing or widening bands as well as cutting rates of taxation, they are not mutually exclusive."
He added: "I do not want to generate any speculation. It is not a question of Government deliberation. We are all trying to work out what is the best position of how we can have a fiscal sustainable package appropriate to our economic circumstances."
The PDs have been pushing for a cut in the top rate of tax this year and propose to make taxation reform a key plank of the party's election manifesto.
Last week the party's deputy leader Liz O'Donnell said she was "hopeful" of such a cut.
A commitment to reducing the top rate of tax to 40 per cent is included in the Programme for Government but Fianna Fáil Ministers, including Mr Cowen, are known to favour other tax measures ahead of a cut in the top rate.
These include widening the tax band to remove thousands of workers from the top rate. At present a worker earning more than €32,000 will find a portion of their salary taxed at the top rate. This stands against a commitment to have 80 per cent of taxpayers paying at the standard rate.