Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

As the Deputy will be aware, the Minister for Children and Youth Affairs has primary responsibility for Government policy in relation to child care and at the outset, I would refer to the interdepartmental working group on future investment in child care in Ireland, which published its report in July 2015.

Having considered the option of a tax credit that would be available to those who incur child care costs, the group recommended against introducing such a measure. The group had concerns that a tax credit would not be equitable, would have high possible deadweight, could end up being fully absorbed in the cost of child care and might not have a meaningful impact on a parent's decision on whether to join or return to the labour market.

The interdepartmental working group also made some initial estimates of the potential costs of such a tax credit based on available data. Tentative costings, based on estimates of average child care costs per pre-primary and primary school child care place, were applied to Department of Social Protection figures on the numbers of such children in receipt of child benefit. If a tax credit were provided in respect of even half of these children at the standard rate of 20%, it would involve a potential cost to the Exchequer of between €290 million and €590 million per annum. The variation depends on the rate of take-up which is difficult to estimate. It was assumed for the purposes of that costing that all paid child care would be covered by the relief, that is, not just centre-based care.

It is clear that any initiative that provides tax credits for paid child care would fail an equity test as it could be seen to unfairly discriminate against those individuals who choose to stay at home to care for their children. In addition, tax relief is only of benefit to those in the tax net and it is estimated that in 2016, 36% of income earners were exempt from income tax altogether.

As regards other tax measures, the Deputy may be aware that in budget 2016, I increased the value of the home carer tax credit and increased the amount of income the home carer can earn while still qualifying for a full or partial credit. The increase in the income threshold is a measure which is of specific benefit to lower income families and retention of the credit could facilitate the home carer in meeting child care costs associated with working any additional hours.

Additional information not given on the floor of the House

There is a commitment in the programme for Government to further increase the home carer credit and I am considering relevant options as part of the tax package for the budget.

I would also point out that the social impact assessment of the budget 2016 tax and welfare measures published by the Department of Social Protection showed that households with children were the biggest beneficiaries.

It should also be noted that budgets 2015 and 2016 introduced reductions in income tax and USC for all income earners that had a relevant liability.  These reductions were specifically focused to target low and middle income earners and the programme for Government commits to continue reductions in personal taxation in order to make Ireland's personal tax system more competitive and to encourage work and employment.

See this speech in context