The Government is willing to significantly reduce the deeply-unpopular public sector pension levy as it prepares to enter crucial talks with unions aimed at thrashing out a new pay deal.
Senior Coalition figures admit that cutting the levy - which costs an average of 7.5pc of gross income - is a "likely option" because it will increase take-home pay across the public sector.
Ministers believe the phasing out of the pension levy will shore up significant support among public sector voters ahead of the general election.
But those within Government circles are keen to play down expectations after Siptu president Jack O'Connor said the abolition of the pension levy should be the first big-ticket item agreed during this week's talks.
Mr O'Connor also took a swipe at politicians, and said they should "refrain" from accepting pay increases of their own.
Ahead of the talks, which begin tomorrow, unions have drawn up a list of demands, including the abolition of the pension levy, pay increases for workers, the ending of the recruitment moratorium in some sectors, as well as a series of commitments against outsourcing and privatisation. The Irish Independent understands that Public Expenditure Minister Brendan Howlin will devote around €250m - a third of his spending power in the next Budget - to improving pay and conditions for government employees.
"Phasing the levy out over time would immediately ensure the take-home pay of workers across the public sector rises.
"The pension levy is a likely option for us," added a Government source last night.
However, the talks could hit a stumbling block when the Government puts forward its own demands for increased productivity as a bargaining tool.
When the pension levy was introduced by the late Brian Lenihan in 2009, it drew a furious response from public sector workers, but was welcomed by many in the private sector.
Union leaders have said since the levy was introduced it has been a deep source of anger among workers.
Siptu's Mr O'Connor said scrapping the pension levy should be the first headline issue agreed. "I think we have to start with the ending of the pension levy, I think it's probably the best thing to start with," he said.
Asked whether politicians should also receive pay increases, as suggested by Mr Howlin in a recent interview with the Irish Independent, Mr O'Connor replied: "I think that people in public life, at that level, should refrain from taking pay increases."
As Siptu president, Mr O'Connor will not take a pay increase.