Taoiseach Leo Varadkar has said the Government would find space to reward work and enterprise in the upcoming budget.

Speaking at a meeting of the Fine Gael parliamentary party in Clonmel, Co Tipperary, Leo Varadkar said high taxes on the middle classes were a cap on aspiration.

He said the Government had taken the decision to merge the USC and PRSI over time.

The Taoiseach said this was a complex and challenging task which would take many budgets to do.

Mr Varadkar said when completed it would mean Ireland would have the kind of social insurance system that exists in other European countries.

He said the change would benefit those on middle incomes who pay the highest rates of tax at very modest incomes.

Minister for Finance Paschal Donohoe last week indicated his intention to raise the entry point for the 40% higher tax rate and also to look at widening the tax bands.

Also on the upcoming budget, the Taoiseach said the Government would keep public spending increases modest but sustainable.

Mr Varadkar said where there was scope in the budget it would be used to provide more funding for infrastructure and public services.

The Taoiseach also said his party is determined to restore morale within An Garda Síochána and improve public confidence in the force.

He added that the party knew what needed to be done in relation to the gardaí and was in the process of doing it.

Speaking on RTÉ's Today with Sean O'Rourke, Mr Donohoe said the Taoiseach wants to ensure that those earning a standard wage do not pay the higher rate of tax.

In relation to the possibility that a tax harmonisation plan by the European Commission may jeopardise Ireland's corporate tax rate, the minister said he would not participate in any policy agenda that may change this for Ireland.

"Our stance on corporation tax at 12.5% and how we manage patents is entirely legitimate and a sustainable policy choice for a small open economy like Ireland to take. I won't participate in any policy agenda that changes that for Ireland," he said. 

The Taoiseach, meanwhile, said he supported the principles contained in the cross-party Oireachtas Committee report on the health service, which was published in the summer.

Mr Varadkar said Minister for Health Simon Harris was working on how best to move forward with the plan and will publish a roadmap for implementation before the end of the year.

Mr Varadkar said this year's health budget of €15 billion was the biggest in the history of the State.

He said the Government understood the enormous stresses faced by people and families without a home as well as those struggling to buy a home of their own.

He said the Government would bring the same determination and focus to solving the housing crisis as it had done to unemployment.

The Taoiseach said the Government is looking at repurposing NAMA to develop land for building on behalf of the State. 

The Government would step in where the private sector had failed and also suggested there would be future announcements on changing planning regulations to make it more affordable to build houses, he added.