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Take an axe to profligate child care and parental leave programmes

By Brendan O'Reilly - posted Tuesday, 10 June 2014

In recent years two of the fastest growing expenditures in the Commonwealth Budget have been Child Care Fee Assistance and Paid Parental Leave. Child Care Fee Assistance (introduced in 1984) is budgeted to cost over $6 billion in 2014-15, while the first government Paid Parental Leave programme (introduced in 2011) is currently costing about $2 billion annually. On top of these programmes, a variety of smaller schemes (directly funding child care servicesand costing hundreds of millions) also exist at Commonwealth and State level (e.g. DEEWR's Community Support Programme, state government payments to child care providers).

The National Commission of Audit estimated that Commonwealth Government expenditure on child care fee assistance will increase to nearly $13 billion by 2023-24, while Abbott's enhanced Paid Parental Leave scheme (which looks like getting through the Senate with Greens' support) will initially cost about $5 billion (over double the cost of the current scheme), growing to over $8 billion by 2023-24.

Besides costing taxpayers an enormous amount of money, these programmes are highly regressive and discriminate against families who look after their own children. The latter include families in rural areas that cannot access formal child care facilities, and parents working non-standard hours. We are talking about parental leave entitlements of roughly half a year's salary (up to a maximum payment of $50,000), and a non means-tested annual child care rebate of up to $7500 per child. Such assistance could (for better off parents) total up to $80,000 per child by the time a child starts school, though $30,000 to $40,000 per child will probably be more the norm for children of more typical mothers working full time and using formal child care.


Lower income families are eligible for the (means-tested) Child Care Benefit. This programme pays a higher care rate of up to $199.50 a week per child but is not tightly targeted. The means test is very generous because the upper income limit for receiving some benefit is $170,404 (per annum) plus $32,219 for each child after the third. Expenditure on the more rapidly growing (not means-tested) Child Care Rebate will in any case overtake that on the Child Care Benefit in 2014-15.

To put all these entitlements in perspective, by about 2015-16 we will likely be talking about combined outlays on Child Care Fee Relief and Paid Parental Leave of around $10 billion annually. By way of comparison, this outlay is about what the Commonwealth is currently spending (individually) on Higher Education, and on Welfare Assistance to the Unemployed and Sick.

Such largesse largely benefits the well-off because Child Care Fee Relief and Paid Parental Leave are targeted on working women and because low income earners are not big users of formal child care . These schemes are of most benefit to dual breadwinner high income families because married women with young children are far more likely to be working than lone mothers with young children, and because use of formal child care by working mothers with young children is highly correlated with earnings.

The 2011 Child Care Survey found that of 846,300 children using formal child care 538,300 came from couple families with both parents employed. It also showed that, of children from couple families attending formal child-care, the biggest group by family income were those in families earning over $2,500 per week. Over a quarter of children from couple families attending long day care and 42 per cent of children from couple families attending Before or After School Care in 2011 were from such high income families

Outlays on child care and parental leave programmes are growing at a frightening pace and will need commensurate tax increases to fund them. On top of all this, subsidised child care and paid parental leave have a major negative effect in distorting price signals to families. The issue with price signals is that child-care subsidies have distorted both supply and demand in the market for child care and to a lesser extent in the greater market for female labour.

Current fee assistance is mainly confined to use of "approved care" – particularly long day care and family day care, and there is very limited scope for assistance for other types of care. These factors, coupled with strict regulations covering staffing qualifications and staff to child ratios in such centres, are a recipe for high costs, so that families are being driven into types of child-care, that even the rich find expensive.


A related problem is that the State Government run preschool system, that could play a bigger care-providing role in addition to its main educational one, has never been reformed to meet the needs of working parents. Perhaps this is because the current situation tends to cost shift by pushing children away from (State-funded) preschools and into (mainly Commonwealth funded) formal child care. A big issue is that preschools have sessional hours of operation (often offering a choice between morning or afternoon attendance) and this makes it very difficult for working parents to use them.

According to Productivity Commission figures, nationally the median weekly cost for 50 hours of care in 2013 was $364 for long day care and $339 for family day care. Shortages of qualified staff, coupled with political and market pressures to improve the pay of child care workers, mean that the cost of formal care is likely to increase much faster than the rate of inflation over the next few years.

According to the 2011 Child Care Survey, for long day care, weekly gross fees per child in the range of $150 to $200 per child were common, reflecting an average 19 hours per week children spend in long day care. The usual net cost per child (after subsidy) fell to less than $80 per week in 2011.

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About the Author

Brendan O’Reilly is a retired commonwealth public servant with a background in economics and accounting. He is currently pursuing private business interests.

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