There will be no reduction in stamp duty for housebuyers in next month’s budget, because the government has decided not to prevent the downward correction in house prices.

Income tax rates are also likely to remain unchanged despite pressure on Brian Lenihan, the finance minister, to compensate for falling tax revenues from the housing and retail sectors by finding new sources of finance.

Lenihan and Brian Cowen have been stressing that a downward “correction” is under way in the Irish housing market and that no intervention on their part should impede that process. “The message from government is that builders who want to shift stock should drop their prices,” said one senior political figure. “Nothing that will interfere with house prices will be done in this budget.”

Indications from government are there will be no cuts in stamp duty, no reintroduction of first-time buyers’ grants and no alteration to mortgage interest relief.

The taoiseach last week reassured trade union negotiators that Budget 2009, brought forward by six weeks to October 14, would not add to workers’ pain if they signed up to a new pay deal, even though wages could be frozen. Government and union sources believe this reassurance means there will be no increase in either the 20% or 41% tax rates. Nor do they expect Lenihan to hit the “old reliables” — petrol, cigarettes and alcohol — with an excise increase.

Such a move would fuel inflation and cause outrage in the trade union movement as it would be seen as having a greater impact on lower-income earners. One trade union source revealed that David Begg, the general-secretary of the Irish Congress of Trade Unions, told Cowen at Friday’s exploratory talks on renewing the national pay negotiations that there would be little point in agreeing to a deal if workers were to be hit again a month later in the budget.

The source said Cowen responded by accepting the point and agreed that the budget could not be allowed to undermine elements of the pay deal.

Lenihan refused to discuss his budget options last week, but referred pointedly to Ireland’s low tax regime as being strategically important for future economic gains. He said: “Clearly our corporate tax rate has been a very important inducement in attracting investment to Ireland. Our low rates of personal taxation have been a very worthwhile incentive to work and to be employed. We have to maintain that.”

In his pursuit of other revenue streams, Lenihan is expected to approve a greater proportion of state utility company profits on a once-off basis. The ESB made a profit of €432m last year and the government retained €145m. The take will be increased significantly this year, however, and the government will also retain a greater proportion of Bord Gais’s profits. The gas board made €166m in 2007. Both utilities have benefited from large price rises over the past 12 months.

While no fiscal incentives will be offered to housebuyers, the Department of Finance is working on plans to make it easier for would-be homebuyers to get mortgages. Lenihan has had meetings with senior Irish bank executives in recent weeks to explore possibilities and to hear first-hand how the credit crunch is affecting the operations of Irish banks in particular. Senior officials at the finance department are examining international schemes to make access to finance easier for homebuyers.

There was speculation in political circles last week that the finance minister would increase his tax take from high earners while not raising tax rates. The most extreme measure would abolish the income ceiling above which PRSI is no longer paid. This would hit higher PAYE earners and the self-employed for up to €270m — roughly the same amount generated by raising the top tax rate by one percentage point.

PRSI is payable on incomes up to €50,700. Taxpayers pay 4%, while the self-employed pay 3%. Abolishing the ceiling would take an extra €450 out of the annual take-home pay of an employee on €60,000 a year. It would more than double the PRSI bill for someone earning €100,000, to €4,000 a year.

Times Recommends

• Fish and chip shops ‘selling cobbler as cod’
• T in the Park festival at Kinross
• Body Watch