Mr. Alan Grey:

As an independent economist I am very happy to go through the evidence in our study. The study focuses on whether child care represents a barrier to employment. The levels of unemployment in Ireland represent a horrific burden on those who are involuntarily unemployed. A particular concern is the high level of long-term unemployment. Any measures which address long-term unemployment, or barriers to taking up employment, will benefit individual families and children and reduce the key underlying cause of poverty in Ireland. In that context an issue is whether child care costs are an inhibiting factor in addressing unemployment.

I would like the committee to consider the danger of policies being considered in a piecemeal way, for example, employment policies that do not consider the impact on children or poverty, or child care policy that does not consider the impact on employment. A linked, integrated policy assessment is needed. Sometimes people consider measures to overcome the child care barriers to employment as existing only in the child care development space. The Government is spending €1.5 billion per annum on active labour market policies so there are significant funds potentially available but very few going into measures to assist families with child care costs where they are a barrier to employment. There are over 400,000 households with children under 10 years of age and over 260,000 with children under five.

Until now there was a strong focus on the average weekly spend on paid preschool child care, which is approximately €133 a week. That is influenced by the fact that many families pay for only very few hours and does not represent the costs faced by families trying to look after children if they wish to obtain full-time employment. More relevant are the new costs that the Indecon analysis identified, the cost of full-time paid child care. The average annual cost for two children in full-time paid child care in Ireland is over €16,000. That is not surprising given the nature of the service provided but if one compares that to the average industrial wage, unless there is State investment to help low income families, they will not be able to take up jobs. As an economist I believe one of the key issues is whether child care costs are an inhibitor to employment in households with the greatest need, with a long cycle of unemployment and economic and social deprivation. The evidence confirms that child care costs represent a barrier to unemployment. A total of 21% of families indicated the cost restricted the hours they worked and 26% indicated it prevented them looking for a job or made them turn down a job.

They are frightening figures in a policy context. The evidence demonstrates that child care costs are a very high percentage of average wages. In the middle to higher income groups there is not such a problem, but if a person is in a lower income group or on the average industrial wage, the average cost of full-time child care is 45% of average wages, which families simply cannot afford. This explains why there is a much lower exit rate from the live register, or unemployment, for families with children; the rate is approximately double the level for others. The potential impact of an appropriate incentive would very likely be to increase participation in employment.

On targeting incentives, it is clear from evidence that the cost of child care is a barrier to employment - there is no point in pretending otherwise - particularly for low income families. We have considered three measures to address this issue. One is an incentive for those in long-term unemployment to cover 67% of child-care costs, the same level for families lucky enough to get onto the community child care subvention scheme. If these schemes are unavailable, a person, basically, gets nothing. For working families with children eligible for a medical card, we believe 50% of child care costs should be provided for, as these are low income families. For those who just breach the threshold for the family income support scheme, there should be a tax break. We propose a tax incentive equal to 40% of child care costs for working families. It would only be for those earning at or below the industrial wage, as the State cannot afford to subsidise other families through a tax incentive. We undertook a very detailed cost-benefit appraisal and indicated to the Donegal child care committee that we did not know what would the results be, although the report would show if it was justified. The analysis is based on standard Department of Public Expenditure and Reform guidelines, demonstrating a positive cost-benefit for the economy and State if such an incentive was introduced.

There is considerable evidence that cognitive abilities are greatly influenced at an early age. The US Nobel prize winner, Kenneth Arrow, in a book he wrote with me on various economic issues, points out that this is a key factor. For families who are involuntarily unemployed, there is a significant impact on child care development. The proposals outlined are economically justified. We are very rigorous economists and spend much time pointing to areas where public expenditure is not justified, but in this case, it would be. This would help families to move from poverty into employment. This is not an alternative proposal to other measures, as a range of other policy initiatives are also required to assist unemployed or low income families with children in order to support child development and remove the vicious circle of intergenerational poverty. They include measures to stimulate employment in the economy aligned with the skill base of the unemployed. These are measures to improve literacy, support families struggling with mortgages or living in deficient housing, as well as to support education and a universal second year child care provision.