New Child Care Subsidy expensive, inflexible and complicated

The government would like us to believe the much-touted Child Care Subsidy is a magical fix-all solution for nearly one million Australian families in need of an affordable solution.

But this is simply not the case. The new subsidy comes with the same problems as the old system. It is still administratively complex, expensive for taxpayers, and does not promote affordable or easily available childcare for parents.

And while the government’s objective is to promote mothers’ workforce participation, this is undermined by a lack of flexibility for parents.

Affordability and availability are undoubtedly the most important issues for parents in selecting childcare. Yet we’ve seen childcare out-of-pocket costs increase by 10% in the past three years — despite parents claiming more in government subsidies.

Meanwhile, parents in parts of Australia still face long waiting lists to get their children into affordable care, while too many vacancies in other areas force childcare centres to charge higher fees to cover their costs.

The new subsidy won’t solve these problems, because subsidies simply don’t work in reducing prices in the long run.

Rather, businesses will just raise prices and pocket the subsidy — undermining the whole point of the subsidy in the first place. A study by the Australian National University confirmed the new subsidy would have an insignificant effect in reducing out-of-pocket costs for parents.

Furthermore, everyone — including parents who are ineligible for the new subsidy and even people without children at all — will have to pay for this generous subsidy through their taxes; to the tune of an $8 billion whack that is expected to hit $9.5 billion within three years.

This is incredibly bad value for money, considering how much parents still have to fork out of their own pockets.

The new subsidy system is also complex for parents to navigate, even though it combines what was previously two childcare payments into a single payment.

This is because the government has had to introduce stricter work and income tests, to ensure the subsidy is properly means-tested and restricted to families where both parents are working.

Inevitably, these tests create bureaucratic hoops for parents to jump through before they can claim the subsidy. Parents working irregular hours will need to keep updating their details to ensure they do not over-claim the subsidy. Little wonder that thousands of parents are dragging their heels in signing up for the new system.

Nor will the new subsidy meet parents’ other needs. Parents want affordable and flexible childcare but they also want choice — to use the type of childcare that works best for them and their children, whether it is home-based care, centre-based care, a nanny or grandparents.

However the new Child Care Subsidy again ignores financial support for these more flexible alternatives to formal childcare – ironic if the goal is to make it easier for mothers to go back to work. Not to mention that competition from these alternatives might lower prices for formal care.

If the government was serious about reducing childcare costs for parents, it would be better to focus on how laws and regulations make childcare centres much more expensive to operate.

The introduction of national childcare regulations, like the National Quality Framework, have significantly increased operating costs for childcare providers. Inevitably, these costs are passed on to parents through higher fees.

This highlights a fundamental contradiction in the government’s actions: trying to make childcare more affordable for parents with subsidies, but also imposing regulations to make childcare more expensive.

It also reflects the conflict in the government’s policy. The Child Care Subsidy is designed to encourage female workforce participation, by lowering the cost of childcare and restricting financial assistance to parents who work. But supporters of the national regulations are pushing for formal early childhood education for all children — not just for children with working parents.

Sadly, the government has missed a big opportunity to get this right, with a childcare policy that puts downward pressure on fees and ensures flexibility and choice for parents. What we have ended up with is a system that is confusing, inflexible and expensive for everyone involved; most of all for parents.

In fact, by Centre for Independent Studies estimations using available information, at least 134,000 families — and possibly up to 280,000, according to Labor — will be worse off.

In the meantime, as taxpayers, everyone will pay for the government’s new childcare subsidy. Whether they use it nor not.

Eugenie Joseph is a Senior Policy Analyst at The Centre for Independent Studies.