Savings: finance minister Brian Lenihan's budget is set to make further social welfare cuts

UNEMPLOYMENT benefit is facing another cut in December's budget with the government set to reduce all social welfare rates with the exception of the old age pension. Savings of up to €700m have also been identified in the health budget, much of which will have to be delivered by increased efficiencies arising out of the Croke Park deal.

While no final decisions have been made, a number of senior government figures have confirmed to the Sunday Tribune that they are likely to be left with no option but to cut social welfare to achieve savings which are expected to be at least €4.5bn for next year.

The cuts are likely to include:

* A cut in all social welfare rates (bar the old age pension) of around 3%.

* An across the board cut in the €150-a-month child benefit payment, including a reduction or elimination of the extra €37-a-month benefit for the third child or more. Social welfare recipients will be compensated through the family income supplement.

* A reduction of the six-day week calculation for unemployment benefit to five days – meaning those on a three-day week can only claim for two days.

* A narrowing of the tax bands and a reduction of tax credits, bringing more low-paid workers into the net and more higher-paid workers into the top. An increase in tax rates has not yet been ruled out, with one source admitting: "We may end up having to go there."

* A scrapping of the PRSI ceiling which will hit higher earners.

* An increase in the threshold for the Drugs Payment Scheme from €120 to €130/€140.

* Increased charges for private beds in public hospitals.

* Greater use of generic drugs at the expense of branded medicine.

* Substantially greater dividends from semi-state companies and cuts in the subsidy given to many non-commercial state agencies.

* A possible increase in the €200,000 per annum levy for tax exiles with the Greens pushing for a reduction in the number of days a person can spend here and not be considered a resident.

* Up to a €500m reduction in the capital programme on top of the €1bn already pencilled in.

A number of confidence-building measures are also being considered including scrapping or diluting the €10 airport tax. The Greens are also pushing for refundable tax credits for people on low incomes, with a provision for increasing these credits to be included in next month's four-year plan.

There is intense debate as to what level of savings should be delivered in this year's budget. It is estimated cuts of at least €10bn-€11bn will be required over the next four years and the prevailing view is that a strong signal has to be sent in year one that the government is determined to tackle the deficit. Sources say savings must be at least €4.5bn this year – made up of €1.5bn in capital programmes, €1bn in tax increases, €700m in health savings and the remainder from cuts in current spending, particularly in the big spending departments of Social Protection and Education. However, there is likely to be some resistance within cabinet. Senior sources said the Taoiseach is "determined" to face down such opposition and deliver the cutbacks.

"We are looking at all options. Nothing is being ruled out," one senior source said.