View from The Hill

View from The Hill

Productivity Commission believes in ending the age of childcare entitlement

Prime Minister Tony Abbott’s signature paid parental leave scheme has faced more criticism this week. AAP/Alan Porritt

A government giving the Productivity Commission an issue to probe should always expect that it is likely to get back more than it bargained for.

The commission, well known for both rigour and commitment to “dry” economic policies, is tough-minded and independent. It doesn’t play to political convenience.

Asking the commission to look at childcare, the Abbott government wanted a model that highlighted the advantages of a more deregulated, flexible system, one that for example incorporated nannies.

This has happened. In the commission’s draft report released this week, nannies are recommended provided they meet the required standard, and other changes are proposed that would liberalise the system.

But the commission has thrown up two difficulties for the government.

Its recommendation for a basic means tested subsidy to replace the present child care benefit (means tested) and child care rebate (non-means tested) would give greater help than now to lower income earners and less to the better off.

At present higher income parents are eligible under the rebate to have half their out-of-pocket childcare costs paid by the government, up to a cap. Under the commission’s preferred plan, those with family incomes over $300,000 would receive assistance for only 30% of “reasonable costs” (if reasonable costs were less than actual fees, parents would get less than 30% of their out of pocket expenses).

This should fit with the Coalition’s rhetoric of ending “the age of entitlement”, and its approach (in government) to means testing other benefits.

But such a restructuring would present political problems for the government. It would hit voters the Coalition needs, when it has already alienated large numbers of people with its controversial budget measures.

The commission considered taking an even tougher position, saying that the level of assistance provided to higher income earners is “contentious. On balance, the commission considers it is possible that additional benefit from providing a minimum subsidy per child to higher income families may be small”. Such a payment may not change the workforce participation or child care decisions of many of these families, it says.

But it comes down in favour of providing these families with some assistance, not least because “a minimum payment” might help stem any reductions in workforce participation associated with taking away the non-means tested rebate, especially for middle incomes families.

The political embarrassment – as distinct from political difficulty - in the commission’s draft report is its dismissive criticism of the Prime Minister’s paid parental leave scheme. Its message is blunt – the benefits of the scheme (over and above the existing Labor one in place) are unclear. It suggests instead diverting some of the funding to childcare, which could provide an extra $1.5 billion a year to be spent there.

Abbott has sought to sell his expensive PPL plan as a workplace entitlement that will encourage more women to stay in the labour force. But the report casts doubt on this too.

Even the commission’s proposed revamp of childcare – an ongoing issue for many working women - would, it admits, have only a limited effect on participation. The changes would add just an extra 47,000 workers to the labour supply. This is because the various elements of the welfare and tax system make for a complex mix of factors affecting participation. In light of this, it is hard to see that the Abbott PPL scheme would do a great deal for participation.

The commission’s comments on the PPL scene will add to the criticisms of the plan among Coalition backbenchers. And if the Greens – who support the scheme in principle – eventually want to build a case to vote against it, the report will provide some help to them.

Treasurer Joe Hockey and Assistant Education Minister Sussan Ley stood firmly in defence of their boss’s PPL policy in the wake of the report. “I guess I get frustrated when people don’t see the difference between childcare policy and paid parental leave policy,” Ley said.

Just as many people get frustrated when politicians refuse to acknowledge the difference between indulgent policy and spending scarce dollars to best advantage.