A two-pronged approach agreed by senior ministers will see the introduction of new tax relief measures and financial subsidies in tomorrow’s Budget, the Irish Independent can reveal.

The Coalition plans to provide relief through both the tax and social welfare systems in a move that is intended to cover every household in the country.

The proposals, which were signed off by the government’s Economic Management Council (EMC), will see householders receive a tax refund worth up to €100 from their water charges bill.

The package of relief from water charges has been improved, following intensifying opposition to the introduction of water charges.

Taxpayers will be able to claim tax relief from their water charges worth up to €100 a year at the lower income tax rate of 20pc. The bill for a family of two adults and two children is estimated at €278, meaning tax relief of €55.60.

The relief will be capped at €100, which would require a bill of €500. The tax relief will be available to everyone, regardless of income.

On the social welfare side, the number of people who will get a €100 subsidy off their tax bills will increase. The Government’s initial plans saw the subsidy being offered to 415,000 who receive the Households Benefit Package, including the over 70s, carers and people with disabilities.

But this number of beneficiaries has now been substantially expanded to include the long-term unemployed and a large number of social welfare recipients who already get the Fuel Allowance. There are currently over 278,000 deemed to be long-termed unemployed, meaning they have been out of work for over 12 months.

A Government source said the new swathe of relief measures is influenced by the Coalition’s “clear understanding” that water charges must be affordable.

But the same source insisted that the plans were agreed by the EMC on Thursday night and do not reflect the size of the weekend’s demonstration in Dublin against water charges or the two by-election results.

Tomorrow’s Budget will see the introduction of income tax relief measures for the first time in over seven years.

Measures due to be announced by Finance Minister Michael Noonan include a one per cent cut on the top rate of income tax of 41pc in 2015.

The three-year tax package will see easing off on the USC and raising the point at which workers hit the higher rate. Taoiseach Enda Kenny has consistently emphasised the need to reduce the marginal rate of tax for workers, which is currently at 52pc.

As revealed by the Irish Independent last week, the Government will leave the price of a pint will remain untouched but will hike the price of cigarettes by 20pc.

There are also plans to hire over 1,000 new teachers and special needs assistants (SNAs). However, Education Minister Jan O’Sullivan has no plans to halt the 250 annual rise of third level tuition fees. Justice Minister Frances Fitzgerald is to receive funding required to replace “ageing” garda vehicles and ensure there is further garda recruitment next year. The Coalition will also present a series of new incentives for farmers and a major building plan aimed at boosting the construction sector. Health Minister Leo Varadkar has seen his spending demands agreed to.

The highly popular 9pc VAT rate for the hospitality sector is also being retained, sources say. The pension levy is due to be reduced to 0.15pc next year with Mr Noonan understood to have considered whether to scrap the levy altogether. Fine Gael backbenchers have lobbied Mr Noonan to scrap the levy as they say it has hit those on defined benefit pensions particularly hard.

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