The Productivity Commission has fired its biggest shot in the war over Australia’s childcare system — and it appears to have missed by a long way.
After a year of work and then another four months on the desk of various Government ministers, the commission has revealed its plans to overhaul child care.
The report stemmed from the many well-known complaints about the current system, which is expensive to the Federal Government.
Parents are left with big out-of-pocket expenses if and when they get the child care they want.
And ultimately there is still a shortfall between the number of parents able (and willing) to return to work after a birth.
This last point is even more important as the overall population ages. The more people who can’t enter the workforce, the more pressure there is on the existing workforce, on existing businesses and on the Budget bottom line.
When Treasurer Joe Hockey put together the terms of reference for the commission’s inquiry he covered every one of those issues. But he also had one significant restriction.
“In making any recommendations for future Australian government policy settings, the commission will consider options within current funding parameters,” he stated.
And it appears that single restriction has caused all sorts of problems for the commission.
The Government spends about $7 billion on measures aimed at helping parents access child care.
Most parents get that through the childcare rebate, the childcare benefit and the jobs, education and training childcare fee assistance program.
The commission, after its extensive inquiry, proposed to simplify the system to a single subsidy to go to childcare providers rather than parents and to means-test access to those payments. Low-income parents would get up to 85 per cent of their costs covered by the subsidy, while households earning more than $250,000 a year would get 20 per cent.
In terms of red tape and bureaucracy, a single payment would be a substantial step.
But — and it’s a big but — what would be the sum of community-wide benefits from the report. In layman economic terms, bugger-all.
For all the movement of cash, the average fall in out-of-pocket costs across the entire community would be a paltry $18.7 million a year.
An extra 16,400 mothers would work annually (at a full-time equivalent level). That’s in a total employed workforce of 11.7 million people.
Supporters played up the fact that mothers would, in total, work an extra 625,000 hours a year.
To put that in context, the nation collectively worked 1.6 billion hours last month.
While total additional costs to the Government would amount to $266 million, the net cost (once extra tax revenues were taken into account) would be a minor $68 million. So the commission has managed to come up with a model that rolls up payments into a single corporate subsidy and does absolutely nothing in terms of workforce participation.
Granted, it makes some headway in terms of backing nannies and au pairs (a restriction that itself appeared more ideology than policy).
But that’s it. There’s precious little about boosting total places of child care. And for those who bemoan the increase in quality, there are a few changes but even the commission has effectively conceded that when it comes to child care, parents want high quality.
Even the total lift in hours seems more a function of a 24-hour a fortnight work test on parents (with some leniency in terms of single parents). This in a country with increasing unemployment.
As a policy framework it falls well short of what should have been achieved and delivered to the Government.
However, hidden in the report are options that could be picked up — if the Government has the policy wherewithal to ignore the very restriction it imposed on the commission that got it to this point.
The commission revealed the cost and benefits of a range of alternatives that it examined.
For instance, lifting the subsidy for low-income families to 90 per cent rather than the 85 per cent it recommended would lift the labour supply by 75,000 hours a week (with a large lift in the number of hours covered by the single childcare payment).
That would cost taxpayers $580 million a year extra.
For high-income earners, a subsidy of 30 per cent rather than 20 per cent would cost $185 million a year in extra childcare costs but lift total labour supply by 168,000 hours a week.
On that count alone, it would appear the commission put ideology — aka, not giving high-income earners much in the way of government support — ahead of clear economic benefits at a relatively low cost.
And there are substantial question marks over the benchmark price the commission used.
The commission found that if it lifted the benchmark price from the median (which would seem a bargain to many parents in Perth if they ever saw it) to the 75 percentile price, then total workforce hours would lift by 113,000 a week at a cost to taxpayers of $574 million.
It would appear the commission has tried to fit its preferred model around the current costs of child care rather than come up with the best fit for parents, the community and the economy.
The OECD, in its most recent Going for Growth report released just a month ago, recognised the issues in Australia’s childcare sector.
“Improve performance of early childhood education by reforming childcare support to account for the high cost of pre-primary education and to encourage parents’ labour-force participation,” it found.
But the commission’s report clearly falls short on that front. That it could come up with a policy prescription that delivers so little in terms of workplace participation says it all.
Fortunately for the Government there are these alternatives in the report.
Prime Minister Tony Abbott abandoning his rolled-gold paid parental leave policy but keeping the 1.5 per cent levy on big businesses to pay for it has given the Government the fiscal space to go beyond what the commission has recommended.
It could use that cash, around $4 billion annually, to really deliver changes to child care that would both reduce pressures on families and improve the economy overall.
Or, preferably, it could ditch the levy and free up cash by addressing the boondoggle that is superannuation tax concessions for high-income earners (but don’t hold your breath on that one).
This, however, would require some bipartisanship.
Sadly, new Social Services Minister Scott Morrison acted on the report’s release as if he was still stopping the boats.
And don’t think there are not plenty of twits inside the Opposition who will see the word “nanny” or “au pair” and start on some stupid class war.
If the Federal Parliament gets this right, there are enormous benefits on the table.
It’s a pity the commission only went part of the way towards it.