Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Question 105: To ask the Minister for Finance the tax measures in place regarding child care, including reliefs and exemptions for development of facilities; the changes he proposes to make in these provisions; and if he will make a statement on the matter. [33541/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The tax measures in place for child care are capital allowances on child care facilities, an exemption from a benefit-in-kind charge where employers provide free or subsidised child care facilities for their employees and the home carer tax credit. Child benefit is also exempt from income tax. There is a need to examine pragmatically and practically what can be done to provide child care support to parents. However, it is the long-standing practice of Ministers for Finance not to comment on what may be contained in upcoming budgets. Any changes to these or any other tax provisions will be considered in the context of the budget and Finance Bill.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Does the Minister agree with the widely held view that tax reliefs and concessions are not the best way to address child care needs? Does he agree that moneys that might be spent by the State in this area in future would be better directed at the provision of universal early childhood care and education access for all three and four year olds? Does he further agree that the extension of paid maternity leave from 18 to 26 weeks would better provide for the needs of mother and child than tax reliefs? Does he agree that tax reliefs have disproportionately benefited high earners?

In his response the Minister referred to the capital allowance for the construction of child care facilities. Is the Minister reconsidering that relief in the context of the review?

Does he accept that very often, though not in all cases, this allowance amounts to a subsidy for those involved in the construction industry, for developers and property speculators and does not impact in a real way with regard to child care provision?

Does the Minister agree that State money would be better spent on direct support for child care facilities for child care workers and for families with children?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I appreciate the Deputy asking specific questions, but these matters are under consideration in the context of the upcoming budget. One is much constrained by that.

The issue is how we increase options for people and ensure a greater supply of child care places. If we do not look at the supply side of the equation, any efforts on the other side will not have the impact one would like to see. It is a question of how this can be achieved in a way that will allow us begin to add to the significant resources already made available by Government.

In the past we gave a significant increase in child benefit, which was a universal payment to all parents. The sum in that area comes to €1.9 billion this year. Including the equal opportunities programme and other benefits and programmes, the total spend that can be allocated to this area now, apart from anything else the Government might do, is about €2.3 billion.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I thank the Minister for his reply and I concur that the supply side is now the area of most critical importance. We are talking of quality, accessible child care. I appreciate that the Minister cannot elaborate on whether the capital allowance relief will be addressed in the Government's forthcoming package of child care measures, because I presume that is part of what he intends announcing in the budget measures.

However, if it were the case that the Minister were not proposing to change this relief, accepting that the Minister will probably take a number of actions, would he consider attaching conditions, specifically putting a time limit on the capital allowance relief?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am not sure what the Deputy means regarding a time limit for the capital allowance. In 1999, a scheme of capital allowances was introduced in respect of qualifying capital expenditure incurred in the construction, refurbishment or extension of a building or part of a building used as a child care facility, where the requirements of the child care pre-school regulations 1996 have been met. An expenditure on any part of a building in use as a dwelling house or part of a dwelling house does not qualify. The allowances apply in respect of expenditure incurred on or after 2 December 1998 and provide for a seven-year write-off period at a rate of 15% in the first six years and 10% in the seventh year. However, budget 2000 provided for accelerated capital allowances at a rate of 100% in one year for both owner-operators and lessors-investors of such facilities with regard to qualifying expenditure incurred on or after 1 December 1999.

With regard to timing options, an owner-operator can opt to increase the 15% allowance for any year up to a maximum of 100% of the qualifying expenditure, which is termed "free depreciation". A lessor or investor can opt to claim the full 100% in the first year only, and unlike the owner-operator, lessors have no choice regarding the percentage of allowances drawn down each year. The full 100% is claimed in year one with any excess carried forward. An owner-operator can set off the capital allowances against taxable income from all sources including PAYE income. This means that owner-operators can opt to draw down as much of the capital allowances, up to 100% in each year, as is necessary, to shelter their income from other sources. On the other hand the investor can offset the 100% initial allowances against rental income from all sources and not just the rental income received from the child care facility operators in year one. If there is insufficient rental income in that year, the maximum an investor can offset against non-rental income is €31,750. The balance of unused capital allowances can only be set off against rental income in the following years.

Capital allowance for child care facilities is one of the many reliefs under detailed review by the Department of Finance in conjunction with the Revenue Commissioners. The final report by the consultants has been received and will be taken into consideration in the 2006 budget and finance Bill.