The Grattan Institute has demolished the popular idea to make childcare tax deductible:
A tax deduction will inevitably give more to high earners than to low and middle earners – the very opposite of the means-tested subsidy. So it’s no surprise that a switch from the subsidy to tax-deductibility would leave all but a handful of high-earning families worse off.
Take a family with two parents working full-time, each earning $40,000 a year, and two children in childcare. Their total childcare cost is currently about $57,000 a year, and they can claim about $46,000 a year in childcare subsidy. Under the tax-deductible option, this would be replaced with a tax deduction of only $4,500, leaving the family $42,000 worse off.