Lapid Orders Staff to Draft Tax Credit for Childcare

Finance Ministry chief tasks treasury to devise plan, despite internal opposition over potential NIS 3 billion annual cost.

Finance Minister Yair Lapid has ordered treasury staff to draft a plan that enables the recognition of childcare expenses for tax purposes.

The draft, revealed this weekend, is intended to help ease the financial burden on the middle class, particularly with regards to raising children and enabling women to work.

This comes after months of discussions, during which Finance Ministry officials tried to convince Lapid to back off the idea due to the costs. It also happened a day after Prime Minister Benjamin Netanyahu committed a significant portion of the budget surplus to the defense establishment.

Currently there's no concrete plan, so it’s unclear whether the benefit will go only to women who earn enough to pay income tax – who account for a small portion of working mothers. Alternately, the benefit could give refunds against the taxes paid by the household as a whole, meaning against the father’s income tax as well. Another option would include a negative income tax to mothers who don’t earn enough to pay tax, or increasing the number of subsidized daycare centers.

It’s also not clear whether all or part of childcare expenses would be recognized for tax purposes.

The proposal has broad opposition from Finance Ministry officials, who estimate that recognizing households’ childcare expenses could cost NIS 3 billion a year, versus the NIS 700 million cost of giving a one-point tax credit per household.

Ministry officials believe there is no justification for harming state revenues to this extent. Most of the money handed out under such a tax credit would go to the top three deciles, which in any case tend to have high rates of female employment. Therefore, such a benefit would increase inequality by strengthening the upper-middle class without encouraging additional women to work, they argue.

They also note that many steps have been taken over the past few years to ease the burden on young families – enforcing the law mandating free daycare from age 3; increasing the tax credits given to working mothers with young children; giving tax credits to working fathers with young children; and subsidizing some after-school care expenses. These steps are costing the state NIS 4 billion annually.

Finance officials also fear that recognizing childcare costs would lead to a list of suits demanding recognition of other costs necessary for working, such as transportation and clothing.

Emil Salman