The taxing question of childcare

Are tax changes needed to help childcare? The simple answer for many would be “yes”. But it’s not that simple.

Childcare in all its forms has become a major issue in the community. How it is best supported by government, however, is a tricky issue.

While a recently released draft report by the Productivity Commission acknowledged that formal and informal Early Childhood Education and Care (ECEC) services play a vital role in the development of Australian children and their preparation for school, and in enabling parents to work, the commission said it does not generally support tax deductibility as a funding model for childcare assistance.

According to presiding commissioner Dr Wendy Craik, “The current system does not meet the needs of all families and the costs of supporting the current childcare system are increasing at an unsustainable rate for taxpayers.”

The 900-page draft report, entitled Childcare and Early Childhood Learning, said government assistance should focus on three priority areas:

1. Mainstream childcare services – the draft report said mainstream support should be a single child-based subsidy that is: means and activity tested, paid directly to the family’s choice of approved services, for up to 100 hours per fortnight, and based on a reasonable cost of delivering ECEC for each age of child in different ECEC types.

2. Children with disabilities and additional needs – the draft suggested that children with additional needs should have access to a “top-up” subsidy to meet the additional reasonable costs of service. Services should have access to assistance to build capacity to provide ECEC for: individual additional needs children, for children in highly disadvantaged communities and to facilitate the integration of ECEC with schools and other services.

3. Preschool – The Australian government should continue to support the states and territories for all children to attend an approved preschool program in the year prior to school.

Some of the key recommendations include replacing the current multiple childcare subsidies (such as the Child Care Rebate and Child Care Benefit) with a single subsidy that would be paid directly to the parents’ choice of provider, and be means and activity tested. The subsidy would be based on a set reasonable cost of care, Craik said.

According to the Productivity Commission, the recommendations for means testing a single childcare rebate would still see all eligible families receiving a minimum of 30% of their reasonable childcare fees reimbursed by taxpayers. Means testing the childcare rebate will mean that more families on very low incomes will pay less for their childcare than they do now, Craik said. She said we expect low income families would see around 90% of their reasonable childcare fees paid by government.

Interestingly, the draft report also recommended that nannies be eligible for childcare subsidies subject to appropriate qualifications (au pairs would not be eligible).

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