Dáil Éireann debate -
Thursday, 17 Apr 1997

Vol. 477 No. 7

Written Answers. - VAT Exemption for Child Care.

Liam Fitzgerald

Question:

60 Mr. L. Fitzgerald asked the Minister for Finance if he has received a copy of a document (details supplied) from the National Children's Nurseries Association calling for VAT exemption for child care and tax relief on child care costs for parents; if so, if he has considered in details these two proposals; and if he will make a response to the association in relation to these proposals. [10233/97]

Minister for Finance (Mr. Quinn)

I am pleased to inform the Deputy that the Finance Bill published on 26 March provides for an effective exemption from VAT for commercial child minding. This will be achieved in two ways.

First, the Bill introduces exemption for persons whose activities are covered by regulations recently established in 1996 under the Child Care Act, 1991 — this will ensure exemption for pre-school services as defined by the Act i.e. "pre-school, play group, day nursery, crèche, day-care or other similar service which caters for pre-school children". It is envisaged that this provision will have effect from 1 May 1997 — the start of the next VAT period.

Second, the Bill clarifies that the exemption for education services applies to "children's and young persons' education" generally to cover child care facilities which might not be regarded as child care within the meaning of the Child Care Act. Again, this provision will be effective from 1 May 1997.

This brings our treatment of child care into line with that in many other member states of the European Union and should still comply with EU VAT law as clarified for the Revenue Commissioners by the European Commission in the recent review exercise.

The initiative has been welcomed by the National Children's Nurseries Association.

As regards the question of allowing tax relief on expenditure relating to child care services, this raises complex issues and there are very different views on the likely impact of such a measure.

The Second Commission for the Status of Women in its report to Government in January 1993 considered the matter but did not recommend that tax relief for child care expenses be given to working parents. The commission considered that it was preferable that any additional State assistance for child care facilities should be provided through increased investment in child care support and services rather than by providing tax relief to parents for work-related child care costs — the NESC report, No. 1991 on women's participation in the Irish labour market reached the same broad conclusion. The commission noted that tax relief would do nothing to increase the supply or quality of child care and would not improve the training or the supply of qualified child care workers. Furthermore, it concluded that tax relief would be of little or no use to those with low or no income and that it would be of more benefit to the higher paid than low earners.

In this context it is tentatively estimated that if, for example, a tax allowance at the standard rate was introduced for the parents of children under five years to cover the cost of registered child care up to a maximum of £3,000 per annum, then the cost to the Exchequer would be over £40 million.

I have no plans to introduce tax relief for child care expenses at this time. The State already provides considerable assistance to parents, in particular through expenditure on child benefit, education and health services. I will, of course, keep the matter under review.

Finally, I wish to point out to the Deputy that an expert working group is to be established under Partnership 2000, involving the relevant interests and chaired by the Department of Equality and Law Reform, to devise a national framework for the development of the child care sector.