Middle-income earners could save about €1,000 a year should the Government introduce a new 30% tax rate in the budget.
Wednesday will see the publication of the Government’s tax strategy papers which will set out a range of options for next month’s budget.
While the Revenue Commissioners has not produced any figures on the cost of introducing a 30% tax rate, it is estimated that a 1% decrease to the 40% rate would cost the exchequer about €400m a year.
It is estimated that if the 30% band was introduced to cover income from €36,800 to €46,800, it would lead to a tax saving of €1,000 per year for the individual.
Currently, any single person earning up to €36,800 a year pays income tax at the basic 20% rate, while any yearly income above that level for single people is taxed at a rate of 40%.
Senior Government sources have said it has the “tacit approval” of all three parties in the coalition.
On the new 30% tax rate, sources have said the analysis shows that one million taxpayers — either couples or individuals — could fall into the new band.
However, sources said the papers merely lay out the arguments for and against such a move and do not definitively make a recommendation.
A source said the papers were a "very straight bat approach". There are also doubts about whether such a large reorganisation of the tax structure could be achieved by next month.
Finance Minister Paschal Donohoe has been examining how a third, middle rate of income tax would work and how it could be implemented after being requested to do so by Tánaiste Leo Varadkar. The issue is seen by many in Fine Gael as a key demand from next month's budget.
Meanwhile, a windfall tax on energy companies could net the Government as much as €126m a year. The figures, laid out by Finance Minister Paschal Donohoe, are based on a 30% tax on profits of energy companies.
Taoiseach Micheál Martin said last week the Government was considering a windfall tax on energy companies in light of recent revelations about "significant" profit.
“The Government will consider a range of issues and will give examination to the issue of windfall tax,” he said.
"We do want significant investment in renewables into the future but, that said, I think there are significant profits being made all round, and we will examine that in the context of the budget.”
Responding to Sinn Féin’s Pearse Doherty, Mr Donohoe said increasing the tax rate on energy companies would net at least an additional €54m.
“Trading profits of companies in Ireland are generally taxed at the standard Corporation Tax rate of 12.5%.
"I am advised by Revenue that the gross additional yield from increasing the corporation tax rate from 12.5% to 20%, 25% or 30% on the taxable profits of all energy providers is tentatively estimated to be in the region of €54m, €90m and €126m respectively, for a full year.
These estimates are based on the 2020 tax returns of energy providers, the latest year for which data are available and fully analysed."