FINANCE Minister Michael Noonan has indicated to the Labour Party that any leeway in the Budget on the spending side will have to be matched by the tax side.
Mr Noonan has said a 2:1 ratio of cuts to taxes will operate in the final adjustment.
But he is insisting that the tax hikes figure has to come down if the spending cuts are lowered.
The negotiations on Budget 2014 are intensifying this week, with the Cabinet discussing the adjustment figure and ministers holding one-to-one meetings with Public Spending Minister Brendan Howlin.
The Cabinet did not discuss the Budget at its weekly meeting yesterday.
However, the high-powered Economic Management Council did meet and will resume its deliberations today.
The package is split between €2bn worth of spending cuts and €1.1bn in tax hikes.
But government sources say Mr Noonan has indicated to Labour that taxes will come down alongside spending.
"He's sticking to the 2:1 ratio. If the expenditure adjustment figure comes down, the amount will fall too. The further you come down, the less amount of tax," a minister said.
The Budget package is ultimately expected to be around €2.8bn.
Mr Noonan gave the clearest indication yet that his October Budget will ease off on the pace of austerity.
The minister said there is some flexibility on the severity of tax hikes and cuts due in next month's Budget.
"We don't want to impose any hardship that isn't necessary," he said.
"The Europeans are very insistent that we meet the targets, but there is a little bit of flexibility and we will work in that space to bring forward the best budget possible."
Mr Kenny said at the weekend that any extra money will be spent on education and job creation schemes.
Mr Noonan's comments are sure to please those who fear cuts or tax hikes, but are certain to annoy some international lenders who are supporting the economy.
The International Monetary Fund, Ireland's Central Bank and, most recently, influential ECB Executive Board member Joerg Asmussen have all said the money should be held to cushion the weak Irish economy against any shocks ahead of an expected exit from the bailout later this year.
Meanwhile, Mr Kenny has defended a decrease in the number of temporary medical cards by saying more people are entitled to full-time cards.
Fianna Fail leader Micheal Martin told the Dail that the number of people getting discretionary medical cards – which are given for a certain period of time to cover an illness – has dropped from 80,000 to 56,000.
Mr Martin said this was causing worry and anxiety for people getting letters telling them cards were being withdrawn.
However, the Taoiseach said that this was because more people are entitled to full-time cards.