Tax Deductible Child Care - What do you think?

A report was recently published by a parliamentary committee chaired by Bronwyn Bishop. The topic was about balancing work and family life. In particular, this report focussed on making child care more accessible or affordable. One of the recommendations was to make child care expenses tax deductible, and retain and even extend the current child care rebates to nannies (currently only parents who send their kids to approved centres get the rebate).

I have a major concern about any kind of rebate, or tax deduction relating to child care. It is that this only addresses the demand side of child care. Don't forget, the government doesn't want to send kids to child care centres purely for the sake of socialising them and making them well adjusted individuals. The main reason is this: Australia is currently experiencing record lows in unemployment rates.

In fact, some may say we have reached or gone below our Non-Accelerating Inflation Rate of Unemployment (NAIRU). Sometimes colloquially referred to as the "natural rate of unemployment." That is, we have reached a point where businesses are having to pay the workers more to keep them and pay more to find new recruits. As one commentator has said "We're not running out of jobs, we're running out of workers". When businesses have to pay more wages, their increased costs are passed onto the consumer in the form of higher prices. Higher prices means more inflation, more inflation means interest rates will probably go up again.

So, where have all the workers gone? Well, at least for part of the workforce, they are at home, looking after their kids. Why? Because any money they make at work will be severely reduced by the cost of having to put their kids in a child care centre.

Why is child care so expensive? Why are there so many waiting lists? How on earth will tax deductions and rebates help? THEY DON'T in my opinion. The presence of high prices for child care and waiting lists is more a result of supply-side mismanagement. You bring down prices in 2 ways - reduce the demand for that service offered at that price or increase the supply of providers willing to supply childcare at that price. Tax rebates and deductions will only serve to fuel demand.

Why is there a shortage of child care centres? My theory is this: Child Care Centres need workers. Quite often, these workers have the qualifications to work in either a pre-school, infants section of a primary school or a child care centre.

If you got paid the same no matter what, and the school jobs offerred school holidays, which job would you go for? The fact of the matter is that child care centres cannot compete for workers on the basis of same pay and conditions. They really need to pay their workers more to keep them. These increases costs are reflected in fees.

So what's the answer? I have no idea.