Use some of PM’s parental leave money for childcare instead: Productivity Commission

Prime Minister Tony Abbott’s much debated paid parental leave policy has suffered another blow. AAP/Nikki Short

The Productivity Commission has issued a challenge to Tony Abbott by saying that some funds from his expensive proposed paid parental leave scheme should be redirected to child care.

In its Childcare and Early Childhood Learning draft report, the commission urges changes that would scrap the non-means-tested element of the present childcare system, hitting the better off and giving more assistance to those on very low incomes.

It proposes replacing current multiple subsidies with a single child-based subsidy that is means-tested and activity-tested.

The subsidy, with a rate varying between 90% and 30% of the deemed cost of care, would be paid directly to the family’s choice of approved service, for up to 100 hours a fortnight.

One of those services would be nannies, who would have to meet quality standards. Au pairs would not be covered but the commission advocates changes to working holiday visas should be made to facilitate families employing them.

The PPL scheme, while unpopular in Coalition circles, is Abbott’s signature policy. For budgetary reasons, he has already had to trim it from an income threshold of $150,000 to $100,000.

The commission says that “it is unclear that the proposed changes to the Paid Parental Leave Scheme – which is more generous than the existing scheme and that recommended in the commission’s 2009 report on paid parental leave – would bring significant additional benefits to the broader community beyond those occurring under the existing scheme.

"There may be a case, therefore, for diverting some funding from the proposed new scheme to another area of government funding”, such as early childhood education and care (ECEC), “where more significant family benefits are likely. Such a move could add up to a further $1.5 billion per year to federal government assistance for ECEC.”

Federal spending on ECEC has risen to about $7 billion a year, but the report says that many parents say it is difficult to find services at a place, price, quality and hours they want.

“To better meet the needs and budgets of families, the range of services approved for assistance should include approved nannies and the cap should be removed from occasional care places. All primary schools should be directed to provide outside-school-hours care for their students, where sufficient demand exists for a viable service.”

The present system has a means-tested childcare benefit, a non-means-tested childcare rebate and “jobs, education, and training childcare fee assistance” for eligible parents who qualify for the maximum childcare benefit. For the vast majority of families, subsidies from the federal government cover more than half their fees. But the commission says that the design of the current measures means that a declining proportion of assistance is going to lower-income families who are least able to afford the services.

Presiding Commissioner Wendy Craik said means-testing the childcare rebate “will mean that more families on very low incomes will pay less for their childcare than they do now. We expect low-income families would see around 90% of their reasonable childcare fees paid by government,” she said.

The report recommends that children with additional needs should have access to a “top-up” subsidy beyond the basic subsidy. The federal government should also continue to support the states for all children to attend preschool in their year before school.

The commission points out that given the broader welfare settings, changes to childcare assistance and accessibility “can only do so much” to increase participation in the workforce. The proposals, according to modelling, would increase the supply of labour by an estimated 0.4% - an extra 47,000 full-time workers.

The cost to government of the commission’s preferred scenario would be $8 billion a year, slightly above the current forward estimates, although the commission also gives more modest scenarios, where high-income earners would not be subsidised.

The commission says it is possible that additional benefit from providing a minimum subsidy to higher-income families may be small but “a minimum payment for every child may … help stem any reductions in parental workforce participation associated with the removal of the non-means-tested childcare rebate, particularly for middle-income families”.

The government has projected that its childcare spending will rise from $6.7 billion in 2013-14 to $8.5 billion by 2017-18.

The effect of the commission’s recommendations on GDP would be, “at most”, a small 0.4% - an extra $5.5 billion.

Submissions on the draft report are invited by September. The Assistant Minister for Education, Sussan Ley, said the Abbott government believed “there needs to be greater choice in childcare options for parents. Australian families should be able to plan childcare around their work life, not their work life around childcare.”