Fine Gael and Labour are to sign an agreed economic and taxation plan within weeks, which will include Labour's pledge to cut the standard tax rate to 18 per cent within two years.
Talks on an agreed Fine Gael/ Labour economic election platform have been under way for months, though both sides yesterday indicated that they expected them to conclude early next month. Fine Gael TD Richard Bruton said Fine Gael/Labour pre-election tax commitments would have to be part of a wider economic package, including tax bands, spending and better value for money.
Defending his proposal, Labour leader Pat Rabbitte said the tax plan would cost just over €1 billion, while other pre-election commitments would cost €1.25 billion, so it was "very modest, really".
Criticising Mr Rabbitte, Taoiseach Bertie Ahern claimed that Labour had "consistently" opposed the tax cuts introduced by the Government over the last decade.
However, Mr Ahern accepted that the €1 billion Labour pledge would not deprive the exchequer of money needed to upgrade infrastructure over the next five years.
"I'm not saying that because I think, as we go on, taxes will probably be reduced. We've been reducing taxes all of the time."
The Government, which has already committed itself to cutting the top tax rate from 41 per cent to 40 per cent in next year's budget, would "continue reducing taxes", Mr Ahern said.
However, he said the key issue today is not tax, but on providing the services and infrastructure needed for a five million-strong population: "That's where the real pressure is. The priority won't be the level of tax in my view. We will continue to reduce taxes as resources permit, but it's not going to be the big issue," Mr Ahern said.
Progressive Democrats leader Michael McDowell said the Labour leader has shown "that he has been talking rubbish for 20 years" during which he attacked "every aspect of our tax policies.
"He has denied our argument that tax rates matter. And here he is now saying, after 20 years of empty, unsuccessful, hypocritical rhetoric, that he accepts he is wrong. What a sad moment for him," he said.
The two major Opposition parties were delighted yesterday by the early reaction to Mr Rabbitte's tax moves amid clear signs of discomfiture among Fianna Fáil and the Progressive Democrats.
Though Labour has gained considerable positive publicity, senior Fine Gael figures argue that the tax pledge has greater attraction for voters because it came from Labour, and not from Fine Gael.
Reflecting the confidence of colleagues, Fine Gael's Jim O'Keeffe said: "This has shot the Government's game plan to pieces. It is like a try under the posts just before half-time."
The Progressive Democrats last night highlighted a speech made by Mr Rabbitte last October when he said: "My personal view is close to that of the Taoiseach, when he said recently that we are likely to have reached the end of the major tax cutting agenda."
However, Mr Rabbitte rejected Mr McDowell's charges, saying that Labour "had never opposed improvements" for low and middle earners, while the Government had "distributed wealth upwards" over the last decade.
"They always ensured that the super earners in our society benefited most. What Labour is ensuring is that those on low and middle incomes will gain most," he said.