The Australian’s Particia Karvelas has produced a good article today explaining why making childcare tax deductible and removing the $7,500 cap, as proposed by several submissions to the Productivity Commission inquiry into childcare, would be a bad deal for lower-to-middle income families:
The chief executive of advocacy group Early Childhood Australia, Samantha Page, says the “regressive” measure being considered would impact heavily on low-income families and should be ruled out…
ECA’s analysis shows that all families would lose from taxdeductibility, compared with the existing subsidies with the caps removed. A family with a household income of $55,000 a year would be worse off by more than $9000 and a family earning $155,000 a year would lose $2875.
The Child Care Rebate is capped at $7500 a year for each child in approved care, regardless of parental income…
I agree wholeheartedly with Ms Page that making childcare tax deductible would be regressive, punishing lower income families to the benefit of high income earners.
With Australia’s progressive income tax system (illustrated below), childcare subsidies under a deductible system would rise with income. So for a lower income family with, say, two adults earning under $37,000 per year, the subsidy would be only $0.19 per dollar spent on childcare, whereas for a very high income family, the subsidy would be $0.45 per dollar spent – clearly a regressive outcome.
A better approach might be to allow the existing childcare rebate to be spent on registered nannies. This way, a family with multiple young children can make their subsidy stretch further than sending each child to childcare (with the added benefit of added flexibility). Such a reform would also benefit shift workers that work outside traditional childcare hours.
