Take an axe to profligate child care and parental leave programmes

In hourly terms the average fee for long day care was $7.20 in the September quarter 2012 according to the Productivity Commission. The amount paid per hour, after Child Care Benefit and Child Care Rebate, for long day care was $1.65 for a family income of $30,000, $2.21 for a family income of $70,000, $2.98 for a family income of $120,000 per annum and $3.60 per hour for incomes of $150,000 per annum. The Productivity Commission figures therefore suggest that users of formal child care are subsidised by Commonwealth fee assistance to the tune of an astonishing 50 to 77 per cent depending on income.

Given that the average gross fee for long day care was $7.20 an hour in 2012 compared with minimum wages of about $15 an hour, it is clear that for low income working mothers the gross return from working is almost entirely negated by the cost of providing child care, if she needs to place more than one child in care. When income taxes as well as transport and other costs associated with work are added in, the situation looks even more untenable but for the lavish fee assistance.

The way GDP is calculated overstates the net contribution to national output of mothers with young children going to work. The National Accounts do not count the output of women who work (unpaid) in the home looking after their children. If these mothers instead go to paid employment, their paid work is counted as part of GDP. In additionthe cost of the formal child care that they now need is also counted (both being part of the money economy).

Overall, child care subsidies have increased demand for formal care because the Government rather than users bears most of the costs. Current policy has also led to formal child care that is unduly expensive, often experiences a shortage of places, is excessively dominated by public/community sector provision, and generally unavailable to those living in non-urban areas. If subsidies were wound back, demand for places (especially on the part of low income earners) would decline and there would be a shift to less expensive services (regulations permitting), including greater use of informal care.

Much of the pressure for subsidised childcare and generous paid parental leave comes from the feminist lobby, which has also opposed assistance for stay-at-home wives (i.e. DIY childcare). Alva Myrdal in Sweden was advocating policies to assist women's labour force participation as early as the 1930s. In English-speaking countries such advocacy generally was not prominent until the 1960s and later.

Heavily subsidised child care and generous parental leave have received considerable support in Northern and Central European countries, most notably Norway and Sweden. The situation in North America, especially the USA, is distinctly less open-handed. Much of Asia is even less so, with the extended family playing an important substitute role.

Sweden provides working parents with an entitlement of 13 months paid leave per child at 78 per cent of the employee's monthly salary up to a ceiling, with 60 days being reserved exclusively for each parent. This largely avoids the need for children in child care during their first year. Long day care is heavily subsidised (over 90%) for parents so that about 93 per cent of 18 month to 5 year olds in Sweden attend (mainly publicly run) long day care centres. This system and the broader welfare state in Sweden (nice until it comes to paying for it) is supported by some of the world's highest tax rates.

In this country most employers regard child care as a private matter but, insofar as it assists employment, it tends to be regarded positively. Attitudes to paid parental leave are much more mixed. A minority of larger companies (particularly in the finance industry) provide paid maternity leave to their employees. Many small businesses (and some large), on the other hand, avoid recruiting pregnant women or will only recruit them on a casual basis because of the disruption subsequent absences are likely to cause. There seems to be almost universal business opposition to the latest parental leave scheme and how it is being funded.

The Australian public sector has very generous parental leave provisions and the babies of senior female public servants are amongst the most expensive in terms of taxpayer support. For Commonwealth public servants up to 52 weeks of maternity leave is provided for, of which generally 12 to 18 weeks is paid on full salary no matter how high. Public servants also have generous personal leave entitlements covering child related matters, with recent mothers also commonly allowed up to two paid lactation breaks of up to 30 minutes duration per day.

My personal situation is that my own family was a substantial user of formal child care (including long day care, after school care and holiday care), when our children were young. I therefore appreciate the need for such services to be readily available in order to allow both parents to work. While I strongly support the availability of child care services, I don't support subsidies, except for the most needy and cases where incentives are needed to avoid poverty traps and welfare dependence. I do nevertheless believe that families with children should pay less tax than those without.

Most middle class families can afford to pay the full cost of child care, and would ultimately be better off having more of their own money to spend rather than the Government spend it for them. The apparent benefits of subsidised child care and generous parental leave schemes for middle and higher income groups are largely an illusion because these are the very groups that pay the most income and other taxes throughout their lives. What currently happens is that such people are paid generous benefits when their children are little and spend the rest of their working life cycle paying taxes needed to fund these schemes for younger cohorts of parents. There might be some sense to this if the expense of children was greatest when they are young. In reality older children are more expensive to support, especially if parents have school fee outlays.

Generous parental leave entitlements and child care subsidies are all symptoms of the creeping welfare state and the phasing out of the traditional notion of personal responsibility. Years ago it was normal for a single breadwinner (the father) to support a wife and a (larger than today's) family with minimal state support. It is therefore ironic that, after decades of real economic growth, the state considers it necessary to support the child minding activities of two income middle-class families.

The way we are headed, Australia will end up with Government handouts consuming an ever-increasing share of resources. If this continues, a 20 per cent GST and other increased taxes will be inevitable, and, if we don't control our deficits, Australia's public finances will end up like Europe's.