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Why childcare subsidies are a bad idea
Childcare rebates and childcare subsidies help childcare centres the most. We should be trying to benefit parents instead, says Jo Townsend.
I gotta confess, I’m a raging proponent of removing any and all barriers to women getting back to work. Not as a mum, or a feminist …. but as a long time top bracket Australian taxpayer.
As a taxpayer, I want more people paying tax, the end. I want as many so-called “second family earners” (newsflash, they’re almost always mums) as possible participating in paid work. A Productivity Commission report last year noted 37% of non-working parents weren’t working because they couldn’t find affordable care for their kids. And that didn’t include the now 310 000 Australian women currently on JobSeeker.
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If it costs us money via childcare or training or upskilling or absolutely whatever - let’s do it. I couldn’t be more in favour of a long term, sustainable plan to help parents become productive. The old school ‘childcare payments are an extra tax on the childless and not everyone benefits’ arguments have been proven untrue over and over again. We now know affordable care = more productivity = good for the nation’s bottom line. But how do we get it? And what model would work?
Labor’s new plan that got plenty of pro-mum headlines last week for the “90% childcare subsidy” sounds good at first. The party’s childcare plan, the centrepiece of last week’s budget in reply, says it benefits the top and bottom of the labour market. The bottom of the working market – households earning under $80,000 total – would have an 80% childcare subsidy increased to 90%, and removing the “cap” on claimable childcare costs for households earning more than $189,390 annually means the top end also benefits.
One recent Australian paper concluded that from the very top down to absolute minimum wage, parents – mothers in particular – are being disincentivised to do any extra hours or days of paid work. That also means any extra hours of taxable income gone - and millions of lost tax dollar opportunities for the federal government.
Childcare costs in Australia are way too high when compared internationally. Many Melbourne and Sydney CBD centres charge $175 per day, per child, for care. In the past three years, increases in childcare costs have outpaced increases in other essential costs – like electricity and housing. Compare that to countries like Finland and Norway, where parents pay about $400 a month to have a child in childcare. That’d get you around 3.2 days in city childcare here. This is, frankly, a joke, and why such an enormous group of – well, let’s call them “wannabe taxpayers” - puts up with this is absolute productivity insanity.
But after first glance, rebates and subsidies like Labor’s new plan are not a clever way to make childcare, or anything, affordable. The you-pay-top-dollar, then we’ll-pay-some-back model never equals affordable care, especially when you throw in massive demand in cities. When the Child Care Subsidy package began, all families regardless of income were eligible for a rebate up to a cap – and the cost of childcare rose exponentially.
Childcare centres, some owned by multinational companies, realised families were no longer fee sensitive if they knew they’d receive a half-back style rebate – and as waiting lists grew, so did childcare fees. Importantly, those fees have never come down, despite the tightening of rebates. It’s the ugliest supply-demand result you’ll ever see, because childcare fees have been created in Australia in a completely false inflated market.
There’s no point overcharging for care, or anything really, then subsidising or rebating that cost. Instead, the daily cost of childcare should have a maximum cap, rather than a user-pays system for the increasingly desperate. That is, Australian centres that charge too much should be told to lower their fees.
After capping maximum allowable fees, making childcare fully tax deductible for households is a far more equitable, permanent and easily understood way of reducing the barriers to paid work (and all those potential tax dollars). After all, when a not permanent 90% rebate is taken away by successive governments, do you think the childcare operators will reduce fees?
Rebates and subsidies have created false markets around the world – let’s not perpetuate that in one of our most important industries.
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