Tensions over who should get benefit of USC cuts
There is an emerging divide between Fine Gael backbenchers and Independents over who should get the benefit of USC cuts in the Budget.
With limited funds available for tax cuts, there are fears that the 'squeezed middle' will lose out.
A source said Fine Gael TDs will be "alarmed" if middle earners aren't taken care of.
Meanwhile, Independent Minister Finian McGrath has said that cuts to the USC must be focused on low-income workers because they've been "hammered" by eight years of austerity.
Fianna Fáil want USC cuts that will benefit both low and middle-income workers.
Amid competing demands, Finance Minister Michael Noonan last week warned there is limited scope for tax cuts and that taxpayers won't be "throwing their hats in the air on Budget night".
He warned that "most of what I'd like to do is not affordable", indicating hard choices will have to be made.
A 0.5pc cut to the two lowest USC rates - as well as the main 5.5pc bracket that would include many middle-income earners - would cost €330m.
This effectively swallows up all of the fiscal space available, leaving no room for other tax cuts.
A similar cut limited to the 1pc and 3pc rates would cost €173m, while just cutting the 5.5pc rate would cost €158m.
Independent Alliance Junior Minister Finian McGrath said his preference from who should benefit from a USC cut is "always low-income workers".
The Minister for Disability Issues - who sits at Cabinet - said that low-income families have been "hammered" and there is a need to address "poverty and inequality".
Mr McGrath said that this is his own view and he wasn't speaking for the other members of the Independent Alliance who support the government.
The Alliance is still finalising its position on the Budget, with its TDs set to meet Public Expenditure Minister Paschal Donohoe this week to discuss spending measures.
Mr McGrath's position on USC cuts will cause concern in Fine Gael, which has had to rein in its election commitment to cut the hated tax by 1pc due to the limited fiscal space available.
One source said that a lack of cuts for the squeezed middle would cause "disquiet".
"People would be alarmed if it didn't include the middle-income people," the source added. They said there is also a question of what Fianna Fáil will "stomach" as well.
"They have a lot of spending demand so they have to try and square those two," the source added.
A senior Fianna Fáil source said the party will be pushing for middle-income workers to get some USC relief, pointing out: "Cutting costs to families is a core commitment in our manifesto."
However, they pointed to the confidence and supply agreement with Fine Gael that promises a USC cut for low-income workers as well. The document also commits to a 2:1 split of the available fiscal space between spending and tax cuts.
The source said Fianna Fáil's priority is the approximately €700m in spending planned for the Budget, including its demand for a €5-a-week increase in the State pension and health and education measures.
The source, meanwhile, said of the requested increase in the State pension that "you can pretty much bank on it now".
"Will there be anybody in the Dáil who will oppose a €5 increase?" I wouldn't say there is."
Initial talks between Fianna Fáil, Mr Noonan and Mr Donohoe took place last week and will intensify as Budget Day draws closer.