Extension of relief a waste of $8bn

THERE have been a lot of interested parties hanging out for the release of the draft report of the Productivity Commission on Childcare and Early Childhood Learning. There is a lot at stake for parents, providers and workers, as well as the government.

Most of the recommendations will not come as a surprise. The commission endorses the National Quality Framework, while arguing for some modifications and greater flexibility. Means-testing of government-provided fee relief is recommended, but even high-income earners will have 30 per cent of the costs met by the government.

The extension of fee relief to accredited nannies makes perfect sense for parents who work long hours, have erratic shifts and/or have a number of young children.

One of the most valuable recommendations of the draft report is that the activity test that applies to receipt of fee relief should be tightened. At the moment, far too many parents use government-subsidised childcare but do not work, or work very little. It is easy to drive a truck through the work requirement as it now applies.

Even so, the PC’s own modelling points to the very modest gain to labour supply that the government would achieve if it spends $8 billion a year (ahead of the forward estimates) on childcare assistance. An additional 47,000 workers can be achieved in a good month, according to the labour force statistics. The impact on GDP is also very small.

Childcare is a classic case of a badly designed policy whose features are difficult to reverse. The increase in the contribution from the taxpayer has been monumental — 300 per cent in a decade — and the observed gains have been very modest, certainly in terms of increased female labour force participation.

The real problem is how some of the worst features of this policy can be reversed. The PC has taken the easy way out and decided that the only feasible path forward is to plough on with what we have. I’m not so sure — $8bn is a hell of a lot of money, some of which could easily be put to better use; by funding the National Disability Insurance Scheme, for instance.