Childcare proposal could cost State up to £300m

A recommendation by Goodbody's to the Partnership 2000 (P2000) working group on childcare could cost the Exchequer up to £300 million, according to a paper on the subject prepared for the tax strategy group.

The paper, which was drafted in the run-up to the December Budget, concludes that any measure to provide tax relief for expenditure on childcare will be "expensive and probably controversial".

The paper outlines seven options which could be considered by the Government; however the group believes all would provoke dissatisfaction. One option, a £2,000 tax allowance at the standard rate of tax for all families with children, including lone parents, could, ultimately, cost up to £168 million in a full year, according to the paper.

No tax relief provision for childcare was introduced in the Budget, save a capital allowances on expenditure by employers on premises built to provide childcare facilities for staff. The Minister for Finance, Mr McCreevy, said the Government would await the recommendations of the P2000 working group on childcare before making a decision on tax relief.

According to the paper, the recommendation from Goodbody consultants to the P2000 working group would cost the Exchequer up to £300 million if the tax relief was made available to couples where both spouses were at work or where one spouse worked in the home.

Goodbody's recommended a tax relief of £4,000 a year for the first child under five, and £3,200 a year for subsequent children; and £2,000 a year for schoolchildren. The recommendation was only to apply to couples where both were working, and to single or widowed parents in employment. The primary focus of the Goodbody report was on equality of opportunity from a labour market perspective.

The need for an integrated approach to the provision of child care services has become the focus of considerable debate in recent years, according to the tax strategy group, not least because in the period 1991 to 1996, an additional 102,000 women took up employment. This was equal to the growth in women's employment over the previous 20 years.

Different relief strategies would benefit different groups of parents, the group notes. The primary tension is between families where both parents are in paid employment and families where one parent works in the home. There are an estimated 338,000 taxpaying married couples with children, 181,000 of which have only one spouse earning. These 181,000 couples have an estimated 402,000 children, according to the paper.

The remaining 157,000 married couples who are both earning, have an estimated 331,000 children. In addition there are an estimated 41,000 taxpaying single or widowed parents with 77,000 children.

The estimates made by the group on the cost of the various options it considered, reflect the maximum exposure over time. Given the serious under-supply of creche facilities and the extent to which child care services are currently part of the black economy, the full costings would not come about until the child care sector had developed, the group notes.

Any attempt to limit the cost to the Exchequer of a particular scheme by restricting those who could qualify for any such relief "could be expected to prove difficult. The complexity of the issues involved makes it very difficult to reach agreement on how best to proceed".

It is also the case that "once an allowance is initiated in any form it will be very difficult to resist the pressure to extend or increase it over time", the group believes.