His comments came after the Government doubled the income levies in the emergency budget last month.
Although the hole in the public finances means December’s budget will also have to be harsh, Mr Lenihan said the Government would focus on spending cuts rather than income tax hikes.
“The limits of income tax increases have been reached in this State,” Mr Lenihan told the Lunchtime with Eamon Keane programme on the Newstalk radio station.
“There’s a limit to the extent we can increase tax to solve our economic problems. I wasn’t anxious to increase tax this year but when I saw the revenue base fall so dramatically, I was obliged to increase the income tax.
“If I hadn’t done that, nobody would have believed the Government in Ireland were capable of even increasing taxation, so that was something we had to do,” Mr Lenihan said.
“But there’s a very definite limit to it because taxes on income and labour are taxes on employment. We don’t want to increase them indefinitely.
“That means I think the focus in the next budget has to be on the expenditure side rather than the taxation side. There are taxation forms being looked at. We are looking at a carbon tax; we’re looking at a number of other initiatives. Certainly household taxation is under consideration, but the Government has not made a decision on it yet and hasn’t deliberated on it yet, other than to say it’s an option we may look at.”
Mr Lenihan also acknowledged the Government would have to take responsibility for the property bubble, although he insisted it was not the sole cause of Ireland’s economic problems.
“There was a property and construction bubble and it’s part of our problem, but it’s not all our problem. Part of our problem is the international climate. We see similar declines in growth rates in all our main European partner countries, but to the extent to which we did have a property bubble in Ireland... we have to take responsibility for it.”
Meanwhile, the head of the state body established to deal with the banks’ toxic loans will appear before an Oireachtas committee today.
Brendan McDonagh, the recently-appointed interim director of the National Assets Management Agency (NAMA), will appear before the Committee on Finance and the Public Service. Also appearing will be Dr Peter Bacon, the consultant who recommended the establishment of NAMA to the Government.