Question for the Minister for Finance (Michael Noonan TD)
For Written answer 30/04/2014
To ask the Minister for Finance his views on the benefits of tax credits for persons using child care; if such a measure would assist working parents and if he will consider introducing such a measure; and if he will make a statement on the matter.
I understand that comprehensive analysis of the options to support the provision of affordable and accessible childcare was undertaken in 2005.
Having considered the options available, the then Government introduced the early childcare supplement, providing a direct payment to all families with young children. In addition, certain other incentives were introduced in order to encourage an increase in the supply of childcare places.
At that time, tax relief for childcare costs was considered but not introduced, as it would only have been of benefit to those in the tax net and would most likely have been absorbed by childcare providers in the form of higher prices. Analysis showed that a standard rated childcare costs allowance of €4,000 per annum would cost the Exchequer €64 million per annum and would have resulted in a reduced liability to income tax of only €15 per week for those availing of it.
The Deputy will be aware that the early childcare supplement has since been abolished as the measure was very costly, poorly targeted and possibly led to increased charges. In its stead, the Early Childhood Care and Education (ECCE) programme, which provides for a free pre-school year for children in the year before commencing primary school, was introduced.
In my view the concerns raised in the 2005 analysis regarding tax relief for childcare costs are still valid. This is particularly the case considering the major changes in the economy that have occurred in the intervening period. Furthermore, I would have concerns about basing any analysis of the cost of making childcare tax deductible on data provided in reports that were compiled nine years ago.
Notwithstanding the absence of tax relief for childcare costs, the Government acknowledges the continuing cost pressures on parents, particularly those with young children. For this reason a number of support measures are available.
These include the Community Childcare Subvention (CCS) programme, which funds community childcare services to enable them to charge reduced childcare fees to qualifying parents, the Childcare Education and Training Support (CETS) programme which provides free childcare places to qualifying FÁS and VEC trainees and the ECCE programme as mentioned above. Generous entitlements to paid and unpaid maternity leave as well as child benefit payments are also provided.
The Department of Social Protection provides financial support to families on low pay by way of the Family Income Supplement (FIS) and to one-parent families through the one-parent family payment.
In addition, a Single Person Child Carer tax credit of €1650 is provided as well as an additional standard rate band of €4,000. This credit and band is payable to any single person with a child under 18 years of age or over 18 years of age if in full time education or permanently incapacitated. The primary claimant may relinquish this credit andincrease in the rate band to a secondary claimant with whom the child resides for not less than 100 days in the year.To claim the Single Person Child Carer Credit a claimant must not be married, in a civil partnership or cohabiting.
The Universal Social Charge (USC) was introduced in Budget 2011 to replace the Income Levy and Health Levy. It was a necessary measure to widen the tax base, remove poverty traps and raise revenue to reduce the budget deficit. It is a more sustainable charge than those it replaced and is applied at a low rate on a wide base with very few exemptions.
In Budget 2012 I announced that those earning less than €10,036 would no longer be subject to the Universal Social Charge. This in itself has removed almost 330,000 individuals from the charge and is of particular benefit to the low paid.
As the Deputy will appreciate, I receive numerous requests for the introduction of new tax reliefs and the extension of existing ones. As the Deputy will also appreciate, I must be mindful of the public finances and the many demands on the Exchequer given the current budgetary constraints. Tax reliefs, no matter how worthwhile in themselves, reduce the tax base and make general reform of the tax system that much more difficult.