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Aiming to please - and failing

By Peter Saunders - posted Wednesday, 3 May 2006

The Australian Bureau of Statistics reported last week that most mothers are no longer staying at home to look after their pre-school children. It is now more common for the father to work full-time while the mother works part-time.

A key reason for this is financial. Young couples with high housing costs and a new baby find it hard living on one income. But even if Mum decides to keep working, she often finds a big chunk of her earnings disappears in child care costs. This has resulted in increasing pressure on the government to reduce the costs of childcare.

In 2000 the Federal Government introduced the Child Care Benefit, which subsidises the fees parents have to pay. For low income families, the fee per child is reduced by up to $144 per week, but even families on $100,000 per year can qualify for some help.


It is, however, an unfortunate fact of economic life that if politicians subsidise the price of something, demand will rise while suppliers will try to cream off some of the subsidy for themselves. This is exactly what happened to child care after 2000. In just four years, demand for places escalated while fees rose 49 per cent faster than inflation.

With an election looming in 2004, the government came up with a second child care fix. This time it offered financial help in the form of a tax rebate which allows parents to claim 30 per cent of what they spend on child care as an offset against their income tax.

Today, therefore, child care is subsidised by both a welfare payment and a tax rebate. Yet even this belt and braces solution has not reduced the pressure for government assistance. If anything, it has intensified it.

In the last month, the ACTU has demanded the government spends $10 billion building a thousand new child care centres; business groups have suggested child care fees should be allowable as a pre-tax salary sacrifice; and ACOSS has called for the Child Care Benefit to be increased while the tax rebate is scrapped.

Meanwhile, one group of Coalition back-benchers is calling for child care subsidies to rise by 50 per cent while another wants them scrapped in return for higher family payments.

Reeling under this onslaught, the treasurer has ruled out any further change to the child care payments system, although he has hinted that he may make existing subsidies more generous in his forthcoming budget to try to buy off some of the pressure.


In the end, though, it won’t matter how much money Mr. Costello throws at this problem, the demands for more spending will not go away. This is because, as soon as the government gives a payment or subsidy to one group of families, it sets up new problems and demands somewhere else. Trying to please all the people all of the time results in an expensive, patchwork system which satisfies nobody.

This is true, not only of child care, but of the whole family payments system. The government helps single parents, but then balances this with more assistance for couples. It gives payments to stay-at-home mothers and then comes under pressure to increase child care assistance for mothers who work. The result of this political balancing act is a $15 billion annual spending splurge in which everybody ends up paying higher taxes to finance everybody else’s special assistance.

The way out of this mess does not lie in yet more benefits, subsidies, rebates and allowances, but in a radical simplification of the entire system. This is why we should welcome the latest proposal by the Coalition’s Family Policy Group of MPs.

This group wants child care support scrapped in return for an increase in family payments for parents with young children. This would enable parents to decide how best to raise their own children, rather than politicians trying to influence their decisions with subsidies and tax breaks.

Parents who want to stay home to raise their pre-school children would get $5,000 per child to set against their lost earnings. Those who want to use child care so they can keep working would get $5,000 per child that they could spend on fees. The government would remain neutral between women who work and women who choose to stay home to look after their children.

The treasurer has dismissed this proposal, but he should have a re-think. The government’s job is to ensure that families can afford to pay for the arrangements that suit them best. The way to do that is to scrap all special subsidies in favour of general family payments and lower taxes.

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About the Author

Peter Saunders is a distinguished fellow of the Centre for Independent Studies, now living in England. After nine years living and working in Australia, Peter Saunders returned to the UK in June 2008 to work as a freelance researcher and independent writer of fiction and non-fiction.He is author of Poverty in Australia: Beyond the Rhetoric and Australia's Welfare Habit, and how to kick it. Peter Saunder's website is here.

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