Taoiseach Leo Varadkar is also considering the full restoration of the telephone allowance, as well as increasing tax credits for the self-employed and carers.
For the first time, the Taoiseach of the day has detailed a “menu” of options ahead of October’s Budget in a briefing paper issued to Fine Gael politicians.
The document, seen by the Irish Independent, spells out 15 tax and spending measures that Mr Varadkar said were on the table ahead of Budget Day on October 11.
In a message to Fine Gael politicians, Mr Varadkar warned that the Budget itself would be “tight”, but said there would be “some scope for tax relief, increased public spending and increases in payments made to pensioners and other people on social welfare”.
He asked his party to rank their top priorities ahead of the Budget, as well as in the context of announcement before the end of the year of the 10-year capital plan.
In what will be seen as a swipe at his predecessor Enda Kenny, Mr Varadkar said the new approach to the Budget solidified his pledge to make Fine Gael more “inclusive”.
He added: “Budget 2018 will be tight. Nonetheless, there will be some scope for tax relief, increased public spending and increases in payments made to pensioners and other people on social welfare.
“I want to know from each constituency, what you believe the top priority should be in each of these three areas. I have included a menu of costed options for you to choose from, but this list is not exhaustive, and you are not confined by it.”
The decision to publish the costings of various tax and spending measures will please Fine Gael politicians. Fianna Fáil this week accused Fine Gael of making spending promises that the party cannot justify.
In relation to taxation, Mr Varadkar proposed two options in the area of USC: abolishing the 0.5pc rate on income up to €12,000, and reducing the 5pc rate to 4pc, which will cost €367m.
In relation to income tax, the Fine Gael leader suggested widening the income tax band so that middle-income earners enter the higher tax bracket at a later point. Currently, PAYE workers pay the higher rate of 40pc when their earnings reach €33,800. Mr Varadkar said raising this threshold by €1,000 would cost €178m.
He also cited far more costly options, such as reducing the higher rate of income tax by 1pc (€283m) and reducing the 20pc standard rate by 1pc, which is costed at €578m.
Increasing the income tax credit for the self-employed and home carers are also included in the document.
In relation to spending, Mr Varadkar included increases in the State pension and social welfare payments for the disabled, carers, lone parents and the unemployed as options.
Significantly, he also proposes increasing child benefit. Raising child benefit by €1 per month would cost the Exchequer €14m.
Finally, the Taoiseach mentioned potential increases to the fuel allowance and the full restoration of the telephone allowance. The latter measure would cost €48m.