Brian Lenihan: 50% lower paid workers currently exempt from paying tax

The lower paid will be asked to fund the bulk of the €700m required in new taxes if Brian Lenihan decides not to introduce a property charge in December's budget.

The €700m is needed as part of the government's plan to find another €3bn in savings and some of it will inevitably come from a move to widen the tax net to include some of the 50% of lower paid workers currently exempt from paying tax.

This high level of exemption from tax is unprecedented in the OECD and it is widely accepted within government that, with the state being forced to borrow up to €20bn a year to fund services, it is no longer tenable.

Finance minister Brian Lenihan has already flagged plans for a new universal social contribution to replace PRSI, the health levy and the income levy, and said it would be paid by everybody at a low rate. This is seen as the most likely way of bringing more workers into the tax net although it could also be done by simply lowering the level of tax credits available to workers, so that tax would apply at a lower wage.

As first reported in the Sunday Tribune, the government was also considering a property or services charge as a further means of broadening the tax base.

This would have been a temporary and simple, flat-rate or tiered, levy which would be dropped when the government was ready to bring in a site valuation tax (a form of property tax) and metered water charges – both of which will take a number of years to introduce.

Reports late last week said the government had shelved plans for such a tax and the issue was now off the agenda.

Such a move would severely limit the government's budgetary options in coming up with the €3bn in savings. It is already prevented from further cuts to public sector pay due to the Croke Park deal, while the view in government is that it will be very difficult to cut social welfare rates again.

Without a levy on property, there would be pressure on the government to raise a lot more than the anticipated €300m from bringing more low-paid workers into the tax net. And it would also mean the government will have to find the additional money from greater cutbacks.

However, government sources this weekend played down the reports that a property tax was now off the agenda. "It hasn't been definitively ruled out. It's too early to rule anything out," one source said.

The sources said that clearly there was an issue for householders who were in negative equity and who had recently paid a large amount in stamp duty. But there was a fundamental need to "restructure the tax system". The bottom line was that the government had to come up with €3bn in savings and there were "limited ways" of doing this without further narrowing options.