Childcare package to prove a costly issue

Despite plans to spend millions on benefits, the Government 's proposals may not live up to parents' expectations and could alienate voters, writes Liam Reid, Political Reporter

From a political point of view, ministers know that no matter what is announced on Wednesday, they will find it difficult not to be in a losing situation, with anything they announce likely to be seen as reactive rather than proactive.

Having spent hours debating and discussing the issue among themselves, and with childcare rarely out of the media spotlight in the past six months, the largely middle-aged Government has discovered the joys and challenges facing many young families in the country in terms of balancing their home/work lives and finances.

Grounded in political realism, they know that any potential childcare package will be more likely to alienate than attract voters in the 2007 general election.

The first problem facing the Government is wholly political.

The opposition parties have a natural advantage in this political game in that whatever Minister for Finance Brian Cowen announces, he can be almost immediately outbid by Fine Gael, Labour and the Greens.

The second problem facing the Government is that expectations are too high. Since the Meath and Kildare North by-elections, there has been huge debate on the childcare issue.

At first, the Government was reluctant to bring in a childcare budget 18 months before a general election. However, as the debate gathered momentum, the Government began hinting and then promising a series of measures to tackle it.

Add to this the generous alternative childcare proposals from opposition parties and the huge exchequer surplus announced last month, and many people could be forgiven for expecting a childcare bonanza.

The Government has been attempting to play down expectations and both the Taoiseach and Mr Cowen have made efforts to dampen down expectations in recent weeks.

As ministers know, there are still finite resources. The Government will be able to present the childcare package in terms of billions of euro, but this will be spread out over a number of years and will include everything from anti-child-poverty measures to childcare training provisions.

In terms of additional direct spending in 2006 such as new childcare payments or tax breaks, the Government is much more constrained in what it can do.

Setting aside €500 million-plus for childcare in the context of other budgetary needs such as increasing social welfare and widening tax bands will be difficult.

At a special Sunday Cabinet meeting a fortnight ago to discuss the Budget, much of the time was taken up with discussing the potential elements of the package.

Certain initiatives will be uncontroversial and generally welcomed, such as tax-free allowances for people minding children in their own homes. The Government will also announce increases in maternity leave and may even set a target of 12 months paid parental leave, to be achieved over a period of between three to five years.

A package of measures aimed at creating a pre-school system, along with funding for childcare facilities on existing school grounds, is also expected. This is again likely to be a multi-annual programme.

Tax breaks for building childcare facilities will also be continued and possibly enhanced.

However, what most parents will be interested in is the direct financial aid they will receive in any package.

One of two measures currently being considered is an additional childcare payment for every child under six years of age which would not be means-tested.

This could be hugely expensive. A payment of €150 per month childcare allowance for every child under the age of six in the State would cost €700 million.

A payment of this magnitude is highly unlikely and the final amount for next year will be considerably less.

Alternatively, or in addition, the Government is also examining a possible tax credit or tax break which would give parents an effective tax rebate of up to €2,500 - or a quarter of the average annual childcare bill in Dublin - per child.

Again, this is a hugely expensive measure which would cost more than €500 million. Again, a much more modest tax credit is likely.

The more dangerous political fact is that, even without the help of the opposition, the Government could inadvertently alienate a whole swathe of voters if they chose the incorrect mechanism to deliver the childcare package.

The essential problem is that a mechanism that helps a family with two working parents might be of absolutely no use to a family where the mother has decided to stay at home, or to a low income family.

Memories of the tax individualisation controversy of seven years ago are still fresh in the minds of the Government and a number of ministers have been keen to stress publicly that, whatever the package, it will benefit both groups.

This is much easier said than done.

A tax credit to couples with children under a certain age would appear to be be a sensible solution, but when this was previously mooted by civil servants last year, it was to apply only to couples where both parents were working.

To introduce a tax credit with this condition would be highly controversial.

A further significant disadvantage is that it would greatly favour middle and high-income families and be of little or no use to those on low pay.

These concerns have shifted the focus to the concept of creating a second direct childcare payment, similar to the existing child benefit payment, but with a cut-off point. It would only apply to children under the age of six. The problem is that, like the current child benefit system, it is enormously expensive.

The current child benefit of at least €141.60 per child per month costs the State €2 billion a year as there is no means test to exclude wealthy parents. If the Government decided to give an additional childcare payment of €100 per month for every child under six, it would cost nearly €500 million per year.

The ultimate result is that the additional benefit to any young family is almost certainly going to be modest, and will, at most, be a fraction of the average costs of nearly €800 per month for keeping a child in a creche in the Dublin area.

That is the headache for the Government. Despite a package that will cost in the hundreds of millions for 2006 alone, it is still looking at getting little credit from the voters that Fianna Fáil and the Progressive Democrats are most anxious to woo.