With the news that fewer women are having babies in New Zealand than ever before, it might be time to review our policy on providing tax cuts for childcare costs.

More and more parents of young children are in paid employment.

In many cases, this is a necessity to provide income for the family. Sometimes it is because both parents wish to further their careers.

Either way, childcare costs for working parents are considerable, a significant portion of many families' income.

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Because it is impossible for parents to work without childcare, should childcare costs be tax deductible for working parents?

The bad news is that under the Income Tax Act childcare costs are not tax deductible for parents, for two reasons.

Firstly, for parents who are self-employed, any expenditure used to generate taxable income is tax deductible, unless it is private expenditure. Childcare costs are considered private expenditure. The childcare just allows the parent to work and does not directly produce taxable income.

Secondly, for parents who are employed and earn salaries and wages, only certain expenses are tax deductible against their salary and wages income. These include the cost of preparing an income tax return and purchasing income protection insurance.

So, should the Government change the law to make childcare costs tax deductible? Should we override the private aspect? Unfortunately this is a complex and emotive subject, with a number of opposing arguable points.

We need to consider:

Personal responsibility. If you have children, it is your responsibility to care for them. The Government already provides significant funds directed at children, such as subsidised childcare, working for families, free education and healthcare to name a few.

Should those people without children, or where their children have become independent, subsidise those with dependent children?

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Some childcare is not paid for. Sometimes other family members are looking after the children. So should they be compensated as well?

If childcare is tax deductible, who will pay the shortfall in tax collected? Will taxes rise, and if so, who will contribute the extra funding?

Subsidising childcare allows for greater participation in the workforce.

If childcare costs were made tax deductible, what possible consequences would this have for New Zealand's economy?

There would be more employment for a start; both for childcare centres and nannies. However will there be enough qualified people to employ as childcare givers?

Like many businesses, some childcare centres struggle to find qualified staff, so will they suffer what has happened in the construction industry with increased wage costs and a large increase in overall construction costs?

On a positive note parents would have more disposable income to spend on families.

For parents who couldn't afford childcare, a tax refund may be enough to allow them to return to the work force, giving them the opportunity to fulfil their career objectives.

If parents have more income and then spend that income, the multiplier effect would occur, where the extra income would be re-spent by the recipients, thereby creating more economic activity.

Therefore the income tax and GST take would increase.

So what do you think - should childcare expenses be tax deductible?

Leicester Gouwland is a partner at business advisory Crowe Horwath.