The Australian has published an article today on an upcoming draft report by the Productivity Commission (PC), which evaluates Australia’s childcare arrangements. According to The Australian, the PC will recommend that the Abbott Government simplify childcare subsidies into a single payment that can be spent on either traditional childcare services or stay-at-home nannies, with subsidies also means tested based on a family’s income:
The Australian can reveal the report backs a nanny scheme, allowing families who do not work traditional hours to receive childcare at home around the clock…
The proposal for a means test will be the most controversial. Under the proposal, a simplified payment would stop at a certain percentage of the cost of childcare and be whittled down to nothing for families on very high incomes.
The present childcare rebate is not means-tested and provides parents with 50 per cent of their childcare costs up to a total of $7500 a year for each child.
…the commission wants to simplify the childcare payment stream to target it to families where it would generate the biggest public return for the taxpayer money spent. It believes payments are going to high-income families that would be participating in the workforce regardless of the rebate.
These look like sensible reforms from the PC.
Allowing childcare subsidies to be spent on nannies is sensible. 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 improved flexibility). Such a reform would also benefit shift workers that work outside traditional childcare hours, and could free-up childcare places.
Means testing of childcare subsidies also seems sensible. It is lower second income earners that face the highest effective marginal tax rates from paid work, whereas those on higher incomes are less effected. As such, it makes sense to target childcare subsidies towards those on lower incomes, in turn increasing labour force participation at the lowest taxpayer cost.
