The Green Party has dealt a further blow to Leo's proposed 30% tax band by indicating they will not support it.

The Tánaiste floated the idea of the new tax band for the "squeezed middle" earlier this year.

However, the proposal has failed to win approval within the Coalition, with the Green Party stating yesterday that changes to taxation should be in line with the agreed Programme for Government.

A party spokesman pointed out that the indexation of current tax bands has already been agreed by the Coalition, stating: "The Green Party supports the indexation of tax bands, as agreed within the Programme for Government commitments. Indexing tax bands means adjusting the various tax bands to ensure that people are no worse off because of inflation."

This would involve increasing the entry points to the 20% and 40% tax rates.

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The Greens are just the latest dissenting voice within the Coalition over the proposal. Minister for Finance Paschal Donohoe, of Fine Gael, and Junior Finance Minister Seán Fleming of Fianna Fáil have both indicated they prefer the indexing of tax bands.

Speaking on RTÉ's Today With Claire Byrne on Monday, Mr Fleming said that he believed the Fianna Fáil party was more likely to support an indexation of tax bands.

The junior minister explained that if people are on a 40% tax rate, they make a similar pension contribution, but if their tax is reduced to 30%, then their pension contribution would also be reduced.

Government sources have said that they believe the Commission on Taxation will report back before next month's Budget.

The commission has been tasked by Government to consider how best the taxation and welfare systems can support economic activity and promote increased employment and prosperity. Their findings will set out a clear taxation pathway to follow.

"It's hard to see Leo's idea being recommended in that. We've already seen that the Tax Strategy Group say that it is inequitable; it would be very surprising if the commission had a completely different view of it," a Government source said.

The Tax Strategy Group (TSG) estimated that indexing tax bands and credits would boost the take-home pay of up to two million taxpayers while costing the Government between €630million and €1.1billion a year to implement. In contrast, around a million taxpayers would benefit up to €1,000 a year from a new 30% tax band. However, the TSG has warned the Government that doing so would be inequitable.

The Coalition is preparing to ease the burden of the cost of living on Budget Day, which has been brought forward to September 27.

It will include €6.7billion worth of spending increases and tax cuts. It is understood that the tax package will be in the region of €1billion. Among the measures will be a substantial increase in welfare, potentially rising by €15 across different payments such as the State pension and the Jobseeker's Allowance.

It will also continue the process of reducing childcare costs through payments to childcare providers who agree to sign up to Government supports. The Greens spokesman said the party supports "targeted measures such as an increase in social welfare payments, as well as increases to the qualified child allowance, the Living Alone allowance for pensioners and the Working Family Payment".

However, other elements of the Government have floated the prospect of a blanket once-off €200 utility payment, which was introduced once already this year.

Another option being considered, which has been deemed "more equitable", is a once-off double payment of the Household Benefits Package. The payment is given to 484,000 people and includes a free TV licence along with €35 a month towards gas or electricity bills.