Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Why you can’t afford childcare

Eugenie Joseph

31 August 2018 | Ideas@TheCentre

Childcare is becoming less affordable in Australia, despite billions of dollars in public subsidies — and it is largely due to increasingly stringent regulation.

The regulation of childcare under the National Quality Framework has had a significant impact on fees and affordability for parents, while the alleged benefits are contestable and not based on firm evidence.

In particular, minimum staff-to-child ratios and qualification rules have required childcare centres to employ more staff with higher qualifications — which add to their labour costs.  These costs, in turn, are being passed on to parents in the form of higher fees.

Childcare fees have been growing well above inflation in recent years, while parents’ out-of-pocket costs have increased by nearly 50% in real terms since 2011 — despite little change in the hours of childcare used.

However, rising fees and out-of-pocket costs should not surprise anybody.

The Council of Australian Governments (COAG) estimated that the staff ratios and qualification rules would add over $1.2 billion to the costs of providing long day care — the most common type of childcare — over 10 years. It also predicted these costs would be passed on to parents.

Based on these estimates, fees for long day care were 11% higher in 2017 than they otherwise would have been, due to staff ratios and qualification rules.

This reflects a bizarre inconsistency in childcare policy. Using one hand, governments are trying to reduce childcare costs with subsidies. With the other hand, governments are driving up the costs of childcare through regulation.

And the cost of childcare subsidies to the federal Budget is expected to be $8 billion this year and reach $9.5 billion within four years. When combined with continued growth in childcare fees, this is not sustainable in the long-term.

Federal and state governments should examine the case for reducing or simplifying the staffing and qualification requirements under the National Quality Framework.

If Australians want affordable childcare, a more flexible approach to regulation is clearly needed.

Eugenie Joseph is the author of the research report, Why childcare is not affordable, published this week.

Key issues at heart of political divide

Jeremy Sammut

31 August 2018 | Ideas@TheCentre

While it is impossible to separate the political events not only of last week but of the last 10 years from the personalities involved, it is a mistake to ignore what these events also suggest about the bigger political picture.

The two most important books on contemporary politics and political disruption in the early 21st century have already ready been written.

These are Charles Murray’s Coming Apart and David Goodheart’s The Road to Somewhere.

Both books discuss, in the US and UK respectively, the growing divide in world-views, aspirations, values and attitudes toward key issues between what is variously termed the elites — or the metropolitan sophisticates or sometimes the political class — and ordinary suburban voters.

The Australian version of these books — examining what we might call the Wentworth versus the Warringah view of the world — is yet to be written. But let me give a potted preliminary version based on the issues at the heart of the political divide in Australia: energy and immigration.

The political class treats these issues in abstract status terms: what will the international community – i.e. my elite peers in a handful of western nations – think about Australia/ME, if emissions aren’t cut and the immigration program isn’t large.

This is not the way that ordinary people feel about these issues. For them, the issue is whether they can affordably heat or cool their homes — and whether the lights stay on. It’s about whether they can find and afford a home, and about how difficult it is to start a family without the security of home ownership. It’s about how long and crowded the journey is to work — and about the family time that is lost on the commute.

The key issues for these people are very ordinary ones, but they are also the issues that are crucial to both the meaning and purpose of life: work, home, and family. And whether we like it or not, the perception and reality is that on these key issues, government policy actions and failures are making life harder — harder by distorting the social equation between effort and reward, not only in monetary terms, but in terms of the ultimate quality of life.

And when the response by the political class to these legitimate issues amounts to saying “Just shut your eyes, and think of headline GDP growth” is it any wonder that we get political disruption, and support for populist alternatives that empathise with the grievances, but have no real answers.

Many commentators also a render popular concerns about issues such as immigration, and the political dynamics they inspire, in abstract terms as a nativist backlash, as reactionary, or as a revolt by the so-called unrepresentative conservative base.

The problem with this kind of tin-eared, pejorative analysis is that it ignores both the ordinariness — and the crucial importance — of what is behind the present political discontents in countries like Australia, the US and the UK.

And those commentators that prefer to shoot the messengers who speak about these issues — rather than deal with the substance of the issues — not only do a disservice to their fellow citizen, but they are also helping to fuel the disruption and polarisation they otherwise lament.

This is based on a vote of thanks given by Dr Jeremy Sammut at the Tony Abbott lunch held at the CIS on Monday.

The storm in the inequality teacup

Robert Carling

31 August 2018 | Ideas@TheCentre

The idea that economic inequality is a problem — and an increasing one — demanding public policy remedies has taken root in Australian political and policy debates. But there is a sense in which these debates have leapfrogged the relevant facts.

The Productivity Commission has done a great service by applying its analytical skills to an elucidation of these facts. Among the Commission’s findings are that:

  • Income inequality has increased slightly since the late 1980s, but the extent of the increase is contested, and since the global financial crisis the trend indicates a slight decline.
  • Australia’s inequality is close to the OECD country average and if there has been any increase it has been at a slower pace than in most other developed countries.
  • Regardless of inequality, the benefits of income growth have been fairly evenly shared across all income deciles.
  • The tax/transfer system has a powerful equalising effect on household incomes.
  • Wealth is much less evenly distributed than income and consumption — and wealth inequality increased up to 2010 — but is more evenly distributed in Australia than in most other developed countries.
  • Australia stands out for its high degree of household income and wealth mobility. Thus, income inequality based on multi-year averages is lower than that based on annual income.

All up, the facts do not support the salience of inequality in Australia’s contemporary political debate.

So why has inequality taken hold as a political issue? The Commission does not venture onto this ground, but I would suggest three reasons:

  • Inequality is a hot issue in certain major countries (particularly the US) and has been transplanted here — not least by touring rock-star economists such as Piketty and Stiglitz — notwithstanding the different context.
  • Those on the left and centre-left have chosen to highlight inequality for political advantage because it fits neatly into the contemporary narrative of victimhood politics.
  • Inequality has become a lightning rod for all manner of peoples’ economic grievances (stagnant real wages, low housing affordability, etc) whether or not they are germane to inequality per se.

Debate is one thing; actual policy is another. The danger is that a misguided emphasis on correcting inequality will lead to policies that damage economic well-being across the board. As the outgoing Commission chairman said, “Inequality is not a sound basis for the determination of public policy”.