The Coalition has dropped plans to reduce the higher rate of income tax in favour of cuts to the unpopular Universal Social Charge in the pre-election budget.
Taoiseach Enda Kenny and Tánaiste Joan Burton confirmed the policy change in separate speeches on Thursday, effectively framing their last budget before the general election.
Fine Gael had previously pushed for cuts to the higher rate of income tax while Labour favoured USC reductions.
The Irish Times reported last month that the two parties had reached a new agreement on tax, which would focus on reductions to the USC.
Fine Gael characterised it as a move to show public sector voters they will also benefit from the budget, following last week’s pay deal.
It comes as grandees from the two parties floated the idea of both running on a joint election platform seeking return as a government.
Voting pact
However, senior figures in both parties are cool on the idea. Labour is understood to favour separate policy platforms with a voting pact. One Fine Gael source suggested such a platform, previously used when the parties were in coalition, is highly unlikely but not impossible.
Last year’s budget reduced the marginal rate – the total tax rate – for middle income earners from 52 per cent to 51 per cent, with an aim to reduce it to 50 per cent before the election using a formula which focused on middle-income earners between €32,800 and €70,000. Fine Gael placed a heavy emphasis on reducing the top rate of income tax from 41 per cent to 40 per cent, to be repeated for future budgets.
Speaking at a tax conference hosted by Grant Thornton, Mr Kenny said October's budget "will reduce the tax rate on these workers to below 50 per cent, this time by cutting the rate of USC". At a Labour Party policy forum in Dublin, Ms Burton said the budget "will continue the process of reducing USC".
The changes are likely to be a reduction in the 7 per cent USC rate by 1 or 2 per cent for those earning less than €70,000.
Former Fine Gael strategist Frank Flannery said both parties should stand for re-election as a coalition with an agreed programme for government.
Two manifestos
“What both parties would need to do is prepare their manifestos, sit down and prepare a programme for government based on the two manifestos, as is done after the election, before the election,” said Mr Flannery.
"What they should present to the people – if they have the courage to do it – is to run as a government. The combination of Michael Noonan and Brendan Howlin presenting an economic strategy for the next five years would be very powerful . . . It would be difficult to put a credible alternative."
Former Labour general secretary Brendan Halligan said "some old hands" has discussed the idea, which offered the prospect of stability compared to a fragmented opposition.
