The Government's tax strategy is set to face a major threat from the trade union movement. SIPTU, the State's largest union, is demanding a radical increase in tax-free allowances in the next Budget, rather than a cut in the actual income tax rates.

The demand runs counter to the Government's current tax-cutting strategy, which involves concentrating on reducing income tax rates. At the same time, the civil service Tax Strategy Group is currently meeting to examine the options for the Budget.

In a speech to be given today, SIPTU's vice-president, Mr Des Geraghty, is expected to criticise the Tanaiste, Ms Harney, for talking about cutting tax rates.

He will say he was heartened by Ms Harney's talk of "drastic tax cuts" but will say that having a cut in the tax rate as the main priority would not be acceptable.

It would, he will declare, be a "scandalous squandering" of resources. SIPTU, he warns, will do "all in its power" to prevent it happening.

SIPTU is calling for virtually all of this year's tax reductions to be spent on improving people's tax-free allowances. Increasing these by £1,000 a year would use up the bulk of the £500 million SIPTU believes should be given over to tax cuts. Any extra resources should be devoted to widening the 26 per cent band or reducing the 26 per cent rate, he says.

Mr Geraghty admits that this is at odds with what he calls the "foolishly promised" rate reductions by the Coalition. He will also stress that it is essential that enough tax is raised to pay for high-quality social services and to pay for anti-poverty and social exclusion strategies and to further reduce the national debt.

It is also essential that sufficient taxes are raised to pay for initiatives such as the National Anti-Poverty Strategy, according to Mr Geraghty.

"We are seeking major shifts in the tax burden, rather than an overall reduction in the tax yield," he will say.

Mr Geraghty will point out that SIPTU is not alone in calling for this approach. Every serious analysis of taxation in recent years has reached the same conclusion, he says. These include, the Tax and Welfare Integration Group, the ESRI, the NESC, the NESF, the Department of Enterprise and Employment and the Combat Poverty Agency.

SIPTU's tax demands "do not, must not, and will not" threaten our social and economic progress, according to Mr Geraghty. He will say that the Minister for Finance's talk of fuelling inflation is not an issue if the tax cuts are for the lower-paid. Pay-outs to the well-off, however, are more likely to be spent on imports, luxury goods and foreign travel, which, he says, would have a more adverse impact on the economy.

According to Mr Geraghty, a £900 increase in personal allowances would benefit almost all workers to the tune of £8.30 a week. However, for the same cost, the top tax rate could be cut from 48 per cent to 40 per cent. This would mean nobody earning below £262 a week if single or £508 a week if married would benefit. On the other hand, a single person on £900 would get an increase of about £51 a week.

It would look great to bring down the top rate of tax but the effects would be a disastrous increase in tax inequity, a radical reduction in the contribution which the best-off taxpayers make to society, a bonanza for those who are already most wealthy and nothing at all for people on low incomes, according to Mr Geraghty.