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Dublin: 11 °C Monday 22 December, 2014

Column: Reasons for making childcare tax-deductible are solid…

…So why is the Department of Finance dragging its heels on figuring out that this policy would be cash-positive for the State, asks independent TD Stephen Donnelly.

Stephen Donnelly

YOU MAY REMEMBER a recent furore over the cost of going to work, and whether people would be better off on the dole. Like most controversies, it came and went in a flurry of indignation, and was quickly forgotten. But while the facts and analyses were contested, there was one indisputable policy conclusion: childcare costs in Ireland are shockingly high.

I proposed a solution at the time: that childcare become a tax deductible. As an independent TD, I don’t have the resources to fully cost or test policy ideas, and it may well be that making childcare tax-deductible isn’t a perfect or comprehensive solution. But it’s certainly a potential solution.

So you might assume the Department of Finance would be interested: that they’d be keen to work out whether this policy measure might actually be cash positive for the State (as international research has suggested) AND create a lot of jobs. But you’d assume wrong.

I asked the Minister for Finance for any such analysis his Department or the Revenue had done, and if he would commission the analysis if it hadn’t already been done. His answer reveals a black hole somewhere in the Department where policy should be.

Michael Noonan said the Revenue had told him that they didn’t capture data on the net cost of childcare and therefore they couldn’t estimate the cost of making it tax deductible. The officials should be embarrassed by their Minister putting on the record that the Irish Department of Finance is not competent enough to do a piece of analysis which would be the bread and butter of Departments of Finance in other countries.
Solid research on the costs of childcare already exists.* Any number of research institutes or academic departments could provide a robust estimate. The analysis for Ireland could draw on Revenue and CSO data and would be relatively straightforward to produce.

“The fact that the Minister for Finance appears unwilling even to look into this research is bewildering”

So why are the Minister and his officials so reluctant to take it on? Perhaps the answer lies here: the Department of Finance isn’t kitted out for technical analysis. Half the Department’s staff apparently have no relevant qualifications (ie. in any of accountancy, business, economics, law or finance). Famously, in 2009 Garret FitzGerald revealed in the Irish Times that there were just three economists in the Department; back when he was Taoiseach, in the 1980s, there were 17. Today, there is just one PhD-level economist in the Department (a further 25 have masters degrees in Economics.)

The fact that the Minister for Finance appears unwilling even to look into this research is bewildering. Worse, without having conducted any analysis, he has relied on unjustified assumptions to dismiss the basis for doing the analysis in the first place. He said it was “possible that the main beneficiaries of any such tax relief would be the childcare providers,” implying that the benefit to parents of any tax deductibility would be assumed by the providers in increased charges. This is precisely the sort of issue which competent analysts would assess; contrary to the Minister’s assertion, I think it likely that, in the context of the Irish economy at present, the main benefits of tax deductibility would go to the parents and the State, not to the childcare providers – but either way, I’d like to see the numbers before I jump to any conclusions.

I have asked the Minister to reconsider this issue, and to either commission analysis based on existing research, or to release funding to allow me to do so. I have also asked Minister Howlin to conduct the analysis, in response to his statement this week in the Dáil that he would have any proposed taxation measure costed. Let’s see what they say. I’m not holding my breath.

* For example: the Review of the Cost of a Full-Day Childcare Placement published by the National Children’s Nurseries Association in 2007, and the report A Social Portrait of Children in Ireland, published by the Office for Social Inclusion in 2007. The data from these or comparable reports could be adjusted to account for inflation and other time-sensitive factors in order to estimate the likely cost of childcare in 2012.

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