A 'city tax' for Dublin hotels who take part in price gouging is under consideration as an alternative to ending the special 9pc VAT rate for the tourism sector, the Irish Independent has learned.
The levy, which is common in other European cities, would see hotels who charge expensive room rates - particularly around big events - forced to pay more to the Government.
Officials in the Department of Tourism are studying ways of "punishing people who charge over a certain rate in Dublin".
It comes amid concern in the Department of Finance that the tourism VAT is being abused by some hoteliers, particularly in the capital. Dublin ranks as the sixth most expensive city in Europe for a hotel stay, with PwC estimating the average room price at €138 per night.
It has been reported that Finance Minister Paschal Donohoe is mulling over the idea of increasing the 9pc VAT rate to 10pc in next month's budget. This would raise €150m.
Such a move would be heavily opposed by Fianna Fáil and a number of Cabinet ministers, including Shane Ross, Michael Ring and Denis Naughten.
"It would absolutely be the wrong thing to do. My impression from Paschal is that it's not in jeopardy at all," one minister said.
City taxes are applied to hotel stays across many cities including Paris, Berlin, Rome, Amsterdam and Barcelona.
Some charge a fixed rate per night while others apply a percentage of the room price.
In Paris visitors pay 20c to €1.50 per night depending on the location and star rating of their accommodation. Berlin and Amsterdam add 5pc to a hotel bill.
The introduction of a similar regime in Dublin is likely to be met with stiff opposition, especially as Ireland attempts to attract new business customers in the wake of Brexit.
But senior Government sources noted the tax could be "tailored to our needs" such as in Cologne where business travellers are exempt from the 5pc 'culture and tourism tax'.
The reduced VAT was introduced for tourism-related goods and services in 2011 in order to boost the industry and stimulate employment during the recession.
Dublin now has some of the highest occupancy rates in Europe, leading some officials in the Department of Finance to question whether the special rate has done its job.
But rural ministers have argued with Mr Donohoe that hotels outside the capital are still battling for survival.
One minister said: "Dublin hotels are messing up the VAT relief for everybody else. It's become impossible to defend giving them a tax break but you can't have a separate rate for two parts of the country."
Meanwhile, the Independent Alliance plans to include a demand for the restoration of the State telephone allowance on its Budget list for 2018.
Sources say Kevin 'Boxer' Moran is pushing for the payment, which was discontinued in 2014, to be reinstated.
The allowance was worth €9.50 per month to almost 400,000 pensioners, disabled people and careers.
The Alliance will shortly submit its full list of Budget requests to Mr Donohoe.
However, Fine Gael sources told the Irish Independent there are no plans to restore the telephone allowance.
A well-placed source noted the Alliance is also seeking the reintroduction of the €850 Bereavement Grant - also cut in 2014 - and achievement of both won't be possible next year.
Earlier this week it emerged telecoms giant Eir is hitting its older customers with a price hike, just a year after a previous rise.