Means-testing child-care rebate means families are paying twice

Means-testing the child care rebate means some families are paying twice since their taxes already support education. Shutterstock

Recent media reports suggest that the Productivity Commission into Child Care and Early Childhood Learning will recommend that the simplified single-payment child-care rebate is means-tested. This is not unexpected given that the new rebate combines both the current child care rebate (not means-tested) and the means-tested child care benefit in the one payment - the precedence for means-testing already exists. But is it really necessary?

Providing a means-tested rebate in which the most needy families receive rebates of up to 90% of child-care costs, middle-income families receive 50% and the most wealthy receive a minimum 30% rebate seems fair in a country where the average full-time yearly salary is around $75,000.

Making wealthier families pay twice?

Those who “do not have” receive more, and those who “do have” receive less. It cannot be denied that the most vulnerable and needy families should receive additional rebates to encourage participation in early childhood and preschool services for children in these families. The long-term social and economic benefits of attendance at early childhood services with well-qualified educators and teachers is well known - particularly for our most vulnerable children.

This suggests that rebates should be based on need. That leads to the argument that the wealthy have the money to fund their children’s care and shouldn’t receive the same benefits as middle-income families. Wouldn’t it be better if their rebates were reduced and the monies redirected to families in greater need?

Early childhood learning is fundamental to development in the early years - especially when the child is from a disadvantaged background. Shutterstock

However, when one considers that people on higher incomes pay higher taxes and contribute more to the pool of money used to provide education, health care and other services - as well as contributing to the overall economy through higher levels of spending - the above argument loses ground.

It can be argued that with means testing, these families end up paying more for a service to which they have already contributed through their taxes and to which they are as entitled to as a family. Since they have already contributed to the system, they should not have to pay more to use it.

What’s the magic cut-off number?

A key issue with means testing is the cut-off point for decreasing the average rebate. This is complicated and is not just about income. It is exacerbated by the number and ages of children in the family - the more children under school age, the greater the costs of early childhood education and care.

So what is the cut-off point for reducing the rebate and what economic modelling will be used to determine it?

Means testing is complex and adds layers of bureaucracy to a system that could otherwise be simple and economical to administer. Assistant Education Minister Sussan Ley has advocated a streamlined, single-payment child rebate system; means testing will add unnecessary layers of complexity and cost and result in a system that is far from simple.

The Productivity Commission is to be commended for considering greater flexibility in the types of child care to which the rebate can be applied - including nanny and other home-based care – enabling families to choose types and combinations of care best suited to them and their children. Let’s not add to this new complexity by means-testing middle and upper-income families.

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