A LESS severe Budget now being planned by the Government will ease the pressure for bigger class sizes and cuts in hospital services.
The Coalition is now expected to have about €300m worth of leeway in the Budget.
And in his behind-closed-doors briefing to his party backbenchers at the Fine Gael think-in in Co Laois, Taoiseach Enda Kenny heaped praise on the Labour Party's role in Government.
"We wouldn't be able to do this on our own," he said.
The softening of attitudes comes after the international markets showed no adverse reaction to some Cabinet ministers' calls for less austerity.
Bond yields, which show the cost of borrowing for the State, continue to fall, which is good news for the Irish economy.
Senior Fine Gael sources already acknowledge they will not hit the €3.1bn target that was originally forecast for the Budget next month.
Mr Noonan indicated to party colleagues at their annual think-in that the Government will be ahead of its deficit reduction target this year.
The adjustment package was planned to be €3.1bn, but the Labour Party has been pressing for a figure of €2.5bn.
Mr Noonan is understood to be pushing back against the Labour demands, but the figure is now expected to fall around the €2.8bn mark.
However, the Finance Minister suggested to the Fine Gael meeting that the deficit for 2013 will be under the 5.1pc target.
Ministers favour directing spare cash towards the education and health budgets, along with capital projects.
Education Minister Ruairi Quinn recently acknowledged fears he would be forced to find over €100m worth of savings.
A dramatic increase in the pupil-teacher-ratio from one teacher for every 28 children to one for every 30 is on the cards.
Fine Gael is prepared to cut Mr Quinn some slack. Likewise, ministers feel the health budget needs to be handled carefully to avoid cuts to hospital and community services.
"There is a lot of sympathy for Ruairi Quinn because education is the bedrock on which future prosperity is based," a cabinet source said.
"Any leeway that would be given would go first of all to capital projects, because that creates jobs. Any other leeway would be towards education because that's the future," another source said.
While some Labour sources claim Mr Quinn is being "hung out to dry" by Fine Gael, a senior FG source said: "We'd be more minded to offer some leeway to education rather than social protection. The options in education are politically far worse."
A drop in unemployment is expected to result in up to €200m for the social welfare budget – providing nearly half the necessary savings.
But government figures want to keep the pressure on Social Protection Minister Joan Burton to find savings elsewhere and bring about reforms.
Mr Noonan said the most important thing is to achieve a "primary surplus" – collecting more taxes than are spent, if interest-rate payments are excluded.
"My position is we run a primary surplus to ensure we get back into the market and get back at low interest rates. And whatever figure it takes to get to that is the adjustment figure.
"I'm not a martinet, I'm not ideological on these issues, I was just good at arithmetic when I was in primary school."
Mr Kenny also said the Budget is not about Labour or Fine Gael achieving victories over each other, but a "collective responsibility" to fix the economy.
Tanaiste Eamon Gilmore insisted that it would be possible to meet the targets in this year's Budget without a €3.1bn adjustment.
A senior Labour source said Fine Gael was running around trying to pin a number on the party "but we're not falling for that trick". "We won't be putting a figure on it until after the September Exchequer figures (which come out on October 2)," the source added.
Public Expenditure Minister Brendan Howlin warned that taking extra money out of the economy could dampen domestic demand.
All the evidence suggests investors looking at Ireland from abroad don't care about a few hundred million euro one way or another.
Meanwhile at the Fine Gael think-in, Mr Kenny confirmed the next general election will be in March 2016.
"In March of 2016, people can judge us on the mandate they gave us," Mr Kenny told told his parliamentary party last night.
By Fiach Kelly, Fionnan Sheahan and Michael Brennan