Warning on using tax relief to help fund childcare
Published 11/07/2015 | 02:30
The use of tax relief to help struggling parents fund childcare is ruled out in a Government report.
A new report on improving childcare provision recommends six months' paid parental leave in the first year of a child's life.
But it warns that direct child-care subsidies are the better way to improve services. The report is compiled by senior officials from eight government departments, including all those involved in children and family issues, along with the Departments of Finance, Public Expenditure and Taoiseach.
The 97-page document, a copy of which has been seen by the Irish Independent, makes some far-reaching recommendations. At least some of these will be promoted by Labour in their efforts to reverse their fortunes in the general election due before April 9 next at very latest.
The study examined best practice internationally and noted schemes which already operated in countries including Britain, France, Norway and New Zealand. It found that state funding for childcare operations and subsidies to parents paying childcare fees were the most widely used.
"Tax-based measures are the least popular internationally," the report authors state.
The authors cite the occasional use of "tax deduction, tax benefit, tax exemption, tax benefit, tax rebate or tax credit" as among the various ways the tax system can be used to help parents pay for childcare. But their comment on all of these is negative.
It notes that tax relief is usually paid in arrears - after parents have forked out for child care.
"It may create difficulties for low-income families who may not be in a position to front-load payments and await reimbursement," the report states.
The study also notes that various options are used in some countries, with France using the tax system to reimburse 25pc of parents' childcare spending up to a maximum of €2,300 per year. Other countries allow a tax rebate of up to 70pc - but France also heavily subsidises child care centres.
"The main criticism of such schemes is that parents on high incomes benefit most, since higher incomes attract higher tax rates," the study finds.
The authors note that it is difficult to assess the cost effectiveness for taxpayers of various subsidy schemes for parents operated in different countries. But it suggests that a good option is to give fee subsidies related to parents' incomes.
A range of other options and their costs are explored.