Adjournment Debate. - VAT on Child Care Services.

With the permission of the House I should like to share my time with Deputy Frances Fitzgerald.

I am sure that is quite in order.

I raise this issue to articulate the anger and concern of thousands of parents nationwide at the announcement of the imposition of a 21 per cent VAT increase on the costs of child care services arising from a decision of the Revenue Commissioners to apply VAT at 21 per cent to crèches and child-minding services generally.

The growth of child care facilities here has been dramatic over the past 20 years with an estimated 50,000 children being catered for by a variety of such services. I call on the Minister for Finance to intervene and take urgent steps to ensure that this 21 per cent VAT rate is not applied to the pre-schools involved. I also call on the Minister to ensure that the costs of this imposition will not have to be borne by parents.

It is extremely important to make child care facilities available to all our children. We are the least developed country in the western world in respect of child care facilities generally. It is extremely important that this savage increase in VAT does not result in children being unable to avail of child care services because of their increased cost. It is estimated that this decision will mean increases of between £10 and £16 in crèches nationwide. Various owners of crèches and Montessori schools have reported that VAT bills amounting to thousands of pounds have already been received and in some instances VAT bills of up to £6,000 have been paid.

I note that educational services such as Montessori pre-schools are exempt from VAT at 21 per cent as they are defined as educational services. However, all existing child care facilities should be classified as "educational". The demarcation line between crèches and pre-schools in the child care area is nonsensical; most establishments have an educational base where children learn through play and other activities.

We are faced with the prospect of the Revenue Commissioners arriving at such definitions and taking decisions on whether an institution or establishment has a wholly child caring dimension or an educational one and, on that interpretation, proposing to apply VAT to the non-educational dimension, a non-runner, not capable of implementation at the outset.

According to the NCNA, at the current charge of £50 to £80 per week in Dublin, a child care service with ten children charging at the lower end of the scale would find itself within the VAT net and that has caused an outcry. Perhaps it illustrates a lack of a coherent plan in relation to pre-schooling here. I have long argued for the establishment of a national forum on early education, on which all providers of education would be represented and at which a proper, coherent, national plan could be developed. It is well known that investment in early education pays rich dividends in society. Throughout the developed world and in the United States proper, planned pre-school education has resulted in tremendous gains for society as a whole, in addition to individual children who will have benefited from well resourced, pre-school education. Children learn at an extremely rapid rate in their early years.

This VAT proposal is anti-family and anti-women. Many women returning to work require child care facilities, like many parents returning to education. No tax relief is available to parents at work or returning to education in respect of child-minding services. The House will be well aware of the difficulties encountered by independent mature students who must bear such child-minding costs themselves when they return to education. This proposed VAT increase will further exacerbate their difficulties. This should be perceived as a total education service and, accordingly, exempt from VAT.

I thank Deputy Martin for sharing his time.

It is time to put a stop to the ambivalence on the provision of child care. I welcome the outcry resulting from the recent Revenue announcement that VAT may have to be charged on child care services.

Today we witnessed strong reaction on the part of representatives of child care organisations nationwide, from the National Women's Council and many others who know that the overall demand for child care services is continuously growing and that thousands of parents and children depend on them. I have no doubt that if this matter is not sorted out we will be inundated with letters from angry, frustrated parents. Most other European Union countries have sorted out this problem; so should we.

It has taken years to tackle this issue. I welcome the commitment contained in Partnership 2000 but we cannot allow that commitment to be derailed by a decision of the Revenue Commissioner. Our objective must be to provide the best quality child care facilities for all our children; by that very definition all such care has an educational component. Indeed, services that do not contain such facilities, far from being charged VAT, should be closed down.

This is not an issue which can be allowed to divide parents. The notion that we must not act on the provision of high quality child care services lest we offend parents taking care of children full-time at home is divisive and blatantly anti-children and anti-family. All families should be able to take advantage of good quality child care services. It should be remembered that today's full-time parent may be tomorrow's part-time worker who may need such services in times of family illness and so on.

Let the nonsense about child care cease. Let us ensure that we develop the best, most accessible and affordable child care services in the interests of all children and their parents. The argument that to support child care is to diminish the role of women caring for their children full-time is a cop-out. What it actually reflects is guilt. The tangible support for and recognition of those of us who have and continue to carry out that role has never been a political priority.

It is about time we found the will to tackle both issues rather than playing one off against the other and shedding crocodile tears for women and children. This is an issue that should be of concern to Members on all sides of the House since it affects many of our citizens and is about our children's future.

I thank Deputy Martin and Deputy Fitzgerald for raising this matter because it will allow me to correct some misleading impressions that appear to be circulating about this subject. The suggestion made in media reports today that this is an initiative to extend VAT does not accord with the facts. In the past many child care providers were below the VAT registration threshold of £20,000 per annum and did not need to levy VAT but could not, correspondingly, deduct their input VAT. VAT has been charged in the case of the larger operators since the late 1970s. The problem has been given greater focus in recent years due to the increasing commercial provision of child minding services, on a very substantial scale. These entities are increasingly above the threshold for VAT registration and thus should charge VAT but they will also have the right of deduction on inputs.

Our treatment of child care services for VAT purposes is governed by the EU sixth VAT Directive which dates from 1977 and with which Irish VAT law must and does comply. Under that directive the main relevant exemption is for child minding services provided by public bodies or recognised non-profit making charities but this exemption does not extend to the provision of child care services generally. Such facilities are liable for VAT at the Irish standard rate — currently 21 per cent — when they are provided in the course or furtherance of business and if their annual turnover exceeds or is likely to exceed the standard VAT registration services threshold of £20,000 per annum.

Education is also exempt under the directive and crèches and playschools which follow a clear educational programme may also be exempt if they come within the terms of the exemption for children's education. It is a matter for the Revenue Commissioners to determine whether a particular facility follows such a programme. The difficulties of deciding what forms of activity are educational in nature have given rise to some concern and we are anxious to help resolve this issue. In accordance with a commitment given in Partnership 2000 a few months ago, the Revenue Commissioners have promised to issue guidelines clarifying the criteria used to determine to what extent child care facilities fall within the terms of the exemption from VAT for children's education. These guidelines are expected to be available in the near future.

The Revenue Commissioners are also researching the treatment of this service in the other member states of the EU. If, taking account of the outcome of these inquiries, one can be satisfied child care as it is developing will come within one or other of the exempt categories set out in the directive, this possibility will certainly be pursued.

I am optimistic about this. My experience of pre-school child facilities goes back a few years but all of them meet educational criteria to some extent. It is a matter for the Revenue Commissioners to lay down the guidelines so that each pre-school or crèche facility can see whether it complies. It will only take a small step to resolve the dilemma and legitimate concerns of parents. Nothing new has happened — the VAT requirement is laid down in a 1977 EU directive — but with larger turnover and more people getting into the business it has become an issue recently. I am sure the matter will be resolved to everyone's satisfaction.