The Taoiseach has moved to defend the government’s plan to introduce income tax cuts in the upcoming budget.

Fine Gael wants to widen income tax bands so that middle income earners do not hit the highest rate of tax too early.

The move has the support of business group IBEC – however it seems set to cause friction with Fianna Fáil.

The Confidence and Supply Arrangement between the two parties calls for a cut in the Universal Social Charge for lower income earners – something Fianna Fáil leader Micheál Martin has indicated he will insist upon.

Coping class

As the first sitting of the Dáil since the summer got underway this afternoon, the Taoiseach Leo Varadkar was accused of ignoring the lowest income earners in an attempt to appease the “coping class.”

Mr Varadkar said that out of the 2 million people who are at work in Ireland, 1.4 million are paying all the income tax.

“They are the ones who produce the wealth that allow us to do all those other things and yes I do believe that they deserve a break in this budget,” he said.

“For that reason we will find some space to give them an increase in their take-home pay and a tax reduction which they deserve and which in turn will allow them to spend more on their families and more on the economy, thus creating employment for other people.”

He said a significant proportion of the population had already been taken out of the USC and tax net altogether.

“Is is not now right that we say to people who are in the middle income bracket and who still pay USC and income tax, and who feel very often that they pay for everything and get very little in return, there should be something in this budget for them as well?” he said.

Increased spending

Labour leader Brendan Howlin said the proposed changes to either income tax or the USC would be regressive measures providing only marginal relief for the people they are designed to help.

He said Fine Gael’s proposal was “designed to give no benefit at all to the poorest half of the working population” while Fianna Fáil’s would be only marginally better.

He said the two options would mean either an extra €4 per week to top earners or €2 per week to lower paid workers and called on the Government to focus instead on increased spending on services.

He said the money could instead be used to reduce college fees by €1000, cut class sizes in primary and secondary schools, raise childcare workers wages to the living wage level and eliminate waiting lists for home care packages.

Balancing the books

Mr Varadkar said the budget would focus on balancing the books and paying down the national debt.

He said public spending would increase by approximately 4.5% next year insisting that “we will do that and we will find some space for tax relief as well.”

He said the budget has not yet been written or agreed.

The Minister for Finance Paschal Donohoe is due to meet with Fianna Fáil later this week to discuss the stand-off over the form that tax cuts should take.

The government will not be able to pass the budget without the agreement of Fianna Fáil.

Additional reporting from Chris Donoghue ...