‘Nothing better’: more funding for childcare better for economy than tax cuts

By Shannon Jenkins

Wednesday November 11, 2020


Making childcare more affordable is the most effective way that the federal government can grow the economy and create jobs, according to Dr Richard Denniss, chief economist at The Australia Institute.

Denniss on Wednesday was joined by former premier of South Australia Jay Weatherill and small business ombud Kate Carnell at a webinar launching a new report comparing the economic impacts of income tax cuts and childcare spending.

Authored by Dr Janine Dixon, senior research fellow at Victoria University’s Centre of Policy Studies, the report found that while net government spending of $2.8 billion on additional childcare would create 135,000 new jobs per year by 2030, similar expenditure on tax cuts would create less than 10,000 jobs.

The research revealed that increased public funding for childcare is nearly 20 times more effective at creating jobs than a tax cut of the same size.

Reflecting on that finding, Denniss argued that when the government gives middle-aged high-income men a tax cut, those men might spend some of that money, but they won’t work any harder because they already have a full time job.

If the government instead took that money and used it to employ childcare workers, those workers would then make it easier for multiple parents with caring responsibilities to work, and all of them would spend money as a result.

“Look, if you wanted to grow the economy and if you wanted to create jobs in the medium term, if that was your goal, there’s really nothing better that you could do from a public policy point of view than make childcare more affordable. Ideally, make it completely free,” Denniss said.

“This is unarguable. I really don’t know a trained economist who would disagree with the assertion that spending money on free childcare will get you a lot more jobs and a lot more growth than spending the same amount of money on tax cuts.”

He noted that the government “has not produced a single piece of evidence” to prove that tax cuts would create more jobs than spending money on childcare.

The report found almost 450,000 Australians with children under the age of five would like to work more hours. If these parents worked an additional 10 hours per week, GDP would be $15 billion per year bigger by 2030.

Read more: Is the budget gendered? The tax cut sure is, think-tank argues

The Morrison government announced that childcare would be free to support families early on in the COVID-19 pandemic, but that support came to an end in July.

Weatherill said the pandemic has not only shown how essential early learning services are to sustaining the economy, it has also revealed how “precarious” Australia’s early childhood system currently is.

“And so in a way the crisis has actually put early childhood on the agenda in a way that it just simply hasn’t been before. And we have to maintain that momentum and build essentially the case for change,” he said.

“There’s a lot of people in the sector that have been calling for a high quality early learning system or early childhood development system for a long time, but the sector is not strong enough by itself. It needs to build a broad coalition across a whole range of domains.”

He noted that there are two key constituencies that can help create pressure for change — the first being working families who experience the “cost of living story”.

“About 27% of the family income disappears in childcare costs which is really expensive at a time in people’s lives when they’re already facing lots of other pressures and challenges … We put a lot of pressure on young families with our current system,” Weatherill said.

“And those same young families typically live in outer suburban areas, they vote and they also influence elections, and this is a cohort that any political party is very interested in attempting to tap into. So I think there’s a rich vein of political opportunity for the first party that actually steps up and says we’re going to meet the needs of those young working families in the outer suburban areas.”

The second group is women, who experience the “gender discrimination story”.

“I mean, we’ve got a system that basically doesn’t support women, indeed it punishes them if they want to work any more than part time. And that gender discrimination that’s embedded in our system is a powerful motivator for a lot of women, and they know it, they feel it, they understand it, and they’re not too pleased about it,” Weatherill said.

“Of course this isn’t entirely an issue about women, but it’s typically the woman that is the second income earner — in 90% of the cases — and they’re the ones that are making those marginal adjustments to their career. They’re the ones that are making the sacrifice.”

Read more: New modelling finds investing in childcare and aged care almost pays for itself


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