The Minister for Finance and Public Expenditure and Reform has given the strongest indication yet that the Government is aiming to raise the point at which earners have to pay the highest rate of tax.

Paschal Donohoe said today that an income tax system that starts taking nearly half of every euro earned by the time someone is earning an average wage is not fair.

Minister Donohoe said this system of tax is "not economically efficient and is not sustainable".

"This is a cap on aspiration and places a ceiling on the ambitions of our people," the Minister said in a speech to the Kennedy Summer School Speakers' Lunch today.

Mr Donohoe said that one of his priorities for Budget Day is to gradually increase the standard rate cut-off point in the income tax code. 

He said he will prioritise band widening over higher rate reduction to prioritise resources on low and middle income families, while he will also support the contribution of the self-employed to the economy.

"We will, overtime, amalgamate the USC and PRSI codes. Among other things this will support the improvement of our social insurance system and widen the provision of supports like dental and optical benefits and paternity leave," the Minister said in his speech.

But he added that this is a "journey" and will take time to complete across "many budgets".

Minister Donohoe said that Budget 2018 will begin the journey to make a "Republic of Opportunity" a reality.

"Reducing the burden of taxation, in an affordable and sustainable way, on low and middle income earners is part of doing just that," he added.

He also added that smoothing, and not amplifying, economic cycles is key for the country and the Government must create as much certainty and direction as it can.

The country's corporation tax policy is a case in point. 

"What we have learned is that predictability of the rate of corporation tax and the certainty that it will not change is as important as the 12.5% rate itself, because it allows businesses to plan, invest and grow," he stated.

The Government's Confidence and Supply agreement with Fianna Fáil does not include plans to increase the entry point to the higher rate of income tax, Fianna Fáil's finance spokesperson has told RTÉ News.

Reacting to Mr Donohoe's indication that the Government is aiming to raise the point at which earners have to pay the highest rate of tax, Michael McGrath said: "We haven't heard from Government that they intend to depart from that agreement."

Speaking in Cork this evening, Mr McGrath said: "In the agreement we entered into with Fine Gael, the focus on income tax is to reduce the Universal Social Charge and we expect more progress on that from this year.

"We haven't heard from Government that they intend to depart from the Confidence and Supply agreement which provides for USC reductions.

"I accept and agree that there is a need over time to increase the entry point to the higher rate of tax but I think the minister has to be straight with people as well.

"Increasing the entry point by €1,000 will cost over €200m in a full year. So I think the minister is talking about a longer-term plan.

"We have an agreement that provides for reductions in the Universal Social Charge now. We saw some of that last year. We expect more of it this year," he added.