The Minister for Finance Brian Cowen has removed 88,000 people from the tax system by increasing the entry point for taxable income to €17,600 in Budget 2007.
The Minister said the measure would cost €501m next year and mean two out of every five workers would be outside the tax net in 2007.
The 20% income tax band will also be widened by €2,000 a year.
Employees will have to earn more then €34,000 before they are taxed at the higher rate.
In addition, the threshold for the payment of the health levy has been increased from €440 to €480.
Earlier in his speech, the Minister said 72,000 new jobs would be created next year.