Make the numbers on childcare payments add up

Innovation and a reduction in red tape around the provision of flexible child care options have been called for repeatedly in submissions to the Productivity Commission’s Inquiry into Childcare and Early Childhood Learning.

This requires more complex and far-reaching policy reform than the ‘tax breaks for centre-based care and nannies’ often called for by leading business men and women. For a start the economics don’t add up.

The current child care system provides higher benefits than would treating childcare payments as a deduction, as the Child Care Rebate (CCR) is higher than the highest personal marginal rate of tax.

For example, a family with both parents working fulltime with one parent earning $120,000 and the other earning $60,000 paying child care fees of $15,000pa for one child, would receive an after tax refund of $5,850. Under the current scheme a CCR entitlement of 50% would be $7,500. This is the case up to the point where the childcare fees exceed the cap of $15,000 per child.

The CCR is also payable fortnightly to a child care centre, whereas tax deductibility would require either waiting until the end of the financial year or adjustments to PAYG deductions. This would pose a much higher financial burden on the majority of families.

So while tax deductibility might work for high income earners it does not distribute the benefits as equitably as a tiered rebate system. This should effectively rule it out as a policy option, however the broader issue of flexible and affordable child-care for the majority of working parents remains.

In its recent draft report, the Productivity Commission (the Commission) estimated that there may be up to 165 000 parents (on a full time equivalent basis) who would like to work, or work more hours, but are not able to do so because they are experiencing difficulties with the cost of, or access to, suitable childcare.

Australia is at the lower end of the OECD when it comes to workforce participation. Around 38 per cent of couple families have one parent working full time and one parent working part time, compared with an OECD average of 24 per cent, according to the Commission. This higher percentage of part-time workers is due to a range of factors, but the lack of flexibility both within the childcare system and workplaces are major contributors.

The Commission has come up with some excellent recommendations. Chief of which is replacing the current multiple childcare subsidies with a single subsidy that would be paid directly to the parents’ choice of provider, and be means and activity tested.

More importantly the subsidy would be based on a set reasonable cost of care, to avoid the continuing escalation in the cost of child-based assistance under the Child Care Benefit (CCB) and CCR. This has grown rapidly in recent years as CCR is tied to the actual prices charged by ECEC services – so families paying the most receive the highest benefits. This typically families with higher incomes, and sometimes for luxury or premium services.

The Commission also proposes reducing the regulatory burdens on some providers and enabling providers to offer more flexible services. This includes ECEC being accessible for approved in-home care. This is good news for the Family Day Care section, arguably the most flexible regulated childcare option.

Curiously, the Government reduced funding to Family Day Care in the May Budget which seems at odds with the push for improved flexibility in the sector. In its submission to the Commission, Family Day Care Australia has proposed extending the family day care model to allow qualified nannies to become an eligible service for which families can receive government assistance. This has been supported by the Commission, but only within the scope of the National Quality Framework and would not extend to unqualified support, such as au pairs.

Principal Commissioner, Dr Wendy Craik, and her team have done an excellent job in reviewing and making recommendations to enable quality and affordable childcare services in an increasingly complex world of work. The big question remains will the Abbott Government listen and beprepared to do the hard work required to implement this major piece of social and economic reform?

Claire Braund is the Executive Director of Women on Boards and the mother of five and nine year-old children.

AFR Talking Point, 23 September 2014, page 43 By Claire Braund

Download a copy here – Childcare AFR 23 Sept 2014