The Minister for Finance, Mr McCreevy, has said he will consider cutting excise duties in the December Budget and has underlined the Government's commitment to reducing the tax paid by low earners.
In an article written for today's Irish Times, the Minister said he would have to "analyse very carefully the role of indirect taxes in alleviating inflation". The rise in duty on cigarettes introduced in last year's budget contributed significantly to spiralling inflation, and reductions in excise duties on fuel and in VAT this time around would ease the effects next year.
Mr McCreevy said the Government would keep to the ambition that 80 per cent of taxpayers should pay tax at the standard rate only, but he cautioned that further reductions in the tax rates would be dependent on economic circumstances.
The Minister's commitments follow a warning from the president of the European Central Bank, Mr Wim Duisenberg, that a give-away Budget could risk further fuelling inflation. Figures released yesterday by the Central Statistics Office showed that the annual rate of increase in the consumer price index was running at 6.2 per cent in August - for the second month in succession.
However, Mr McCreevy said that while he is in agreement with Mr Duisenberg, the Government had a responsibility to be careful not to withdraw from electoral and partnership commitments on taxation and wages due to a misreading of the various economic signals.
The trade unions responded to the latest inflation figures yesterday by stepping up the pressure for further tax cuts and pay rises to compensate their members, but IBEC, the employers' body, ruled out any renegotiation on pay. SIPTU, the State's largest union, outlined a pay claim of 5 per cent.
The Taoiseach responded by citing the ICTU warning about the danger of returning to the "bad old days" of pay increases chasing price increases.
And as economists predicted that the rate of inflation was now heading for a rate of 7 per cent, Mr Ahern also told Government Ministers that they must respond by containing departmental spending in the next year.
The Cabinet's Tax Strategy Group had its first pre-Budget meeting yesterday and Mr Ahern and Mr McCreevy told Ministers that their spending wishes for the next 12 months were "totally unrealistic" and should be revised within a week.
"It is not a bottomless pit. Just because the money is there does not mean that it is limitless. All the requests from the various departments were unrealistic given the pressures that we face in relation to inflation," a Government source said.