Sunday, February 22, 2015

Childcare costs

An excellent editorial in the AFR today (unfortunately paywalled, buy yourself an AFR!) identifies the core problem with childcare subsidy policies in Australia.  The $6.7b from the Commonwealth and the $800m by the states that gets channelled into such subsidies should be skewed much more heavily towards low income earners.  Parents earning $160,000 plus annually will still have 60% of their childcare costs covered by taxpayers, those earning $200,000 will get 20% subsidies - these are after the reforms suggested by the Productivity Commission are implemented.  Indeed I would go much further than the AFR and look for very substantial cuts in the level of assistance provided across the board.

This childcare aspect of our entitlement society is absurd.   The prevailing belief is that even if you earn high incomes the fact that you are a parent gives you a net claim over the incomes of those who are not parents.

People don't have a right to have children that they cannot afford to make a substantial contribution to supporting. Those earning high incomes should obviously pay their own childcare costs.  Mothers (or fathers) who find that their incomes are too low to cover childcare costs should either stay at home and look after their children or delay having children until they can afford to by-in-large support their own children.  People need to understand that their parenting decisions have consequences that they must bear.

Subsidizing children and having an active immigration program creates high child-raising costs in Australia by driving, in particular, high housing prices.  We do not need to have an ever-increasing population - there are plenty of people - and, with less demand for housing, the cost of raising children would fall in accord with reduced market pressures.  We would also experience lower infrastructure costs and less unpriced congestion in our urban centres.


  1. "The prevailing belief is that even if you earn high incomes the fact that you are a parent gives you a net claim over the incomes of those who are not parents. "

    Err, no. Family payments are means tested and so is most childcare assistance. The real irony is that you can make a damned good case that they ought NOT to be:

    - formal childcare is a COST OF WORK. This cost represents a reduction in capacity to pay tax, so the "equal sacrifice" principle says it should be deductible. But deductibility would in fact be far more regressive than a tax credit or universal flat-rate subsidy.

    - children benefit society in addition to any benefit they give their parents (if only as future taxpayers); there is a classic positive externality. But that's as true of rich kids as poor ones (in fact some - not me - assert its even truer) so the subsidy should be universal for efficiency.

    On childcare specifically, there are also two particular arguments against means testing it:

    - The price elasticity of labour supply has long been known empirically to be higher among mothers than any other group in the population. Therefore the welfare loss from high EMTRS (which is what means tests must create) is higher among this group than any other.

    - to the extent that means tested childcare encourages participation in only low paid or part time work (the direct effect of the aforesaid EMTRs) then it will actually worsen the gender wage gap.

    - derrida derider

  2. A bit lost about your comment. Do you dispute the figures the AFR provide or not? Childcare as a cost of work - so too are fares getting to and from work and the cost of your morning coffee. No subsidies there and no tax deductibility. A reduced capacity to pay does not imply an "equal sacrifice" principle whatever that means - the ability to pay principle says that those who earn more should pay more while the benefits principle suggests those getting greater benefits should pay more. In each case the wealthy should get much lower childcare benefits. I don't think there are any external benefits to having children so again lost there. A bad hair day Derrida?