Category: The Clash of Child Care Policies – What’s Best?

Universal $10 a day child care? Tax credits for any type of care? Money to parents as a family allowance?

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How is CWELCC Doing? A Response to Peter Jon Mitchell

This week in the Hill Times, Peter Jon Mitchell says he wants to get rid of the $10 a day federal child care program.  But too many families now love it and depend on the increased child care affordability that has made their lives better.  So instead Peter Jon argues that the Canada Child Benefit or the Child Care Expense Deduction should be amended to provide child care assistance to those who can’t find child care.  But neither solution would be much help.  The Canada Child Benefit goes to nearly every family independent of whether they want to use any form of child care so this would be a very expensive way to deliver assistance.  And the type of tax credit that Peter Jon would use to replace the Expense Deduction has been an unmitigated disaster for child care quality in Quebec, as the charts below show.

Peter Jon hopes to convince us that the federal child care funding program is a complete failure and shambles, so he throws as much mud as possible at the wall to see if any of it will stick.  He has these complaints about the program:

  1. Space creation is difficult because the child care agreements favour expansion predominantly in the not-for-profit/public/family child care sector
  2. Many existing licensed spaces are empty or not operating
  3. Most children under six years of age don’t benefit from the program
  4. Only 71% of centres are in CWELCC – the federally funded program
  5. The program breeds inequality. Child care enrolment by low-income families is declining – by 31% in Ontario.
  1. Not-for-profit

The not-for-profit issue has been tested in practice.  As Peter Jon reminds us  “Quebec’s daycare program, upon which the CWELCC is modelled, has long depended on private, for-profit childcare businesses.”  It’s true that since about 2010, Quebec has relied on a tax-credit-funded expansion of for-profit child care operators.  There are three types of centres in Quebec. There are the CPEs which are not-for-profit community-based centres that charge a flat fee less than $10 a day.  There are the funded for-profit child care centres (shown as GS on the charts) that also charge the low flat fee. There are the tax-credit-funded child care centres that grew since about 2010, shown as GNS on the charts.

It might surprise Mr. Mitchell to hear that Quebec Families Minister Mathieu Lacombe told the Globe and Mail in 2022 that “allowing for the expansion of private daycares was the biggest mistake that the Quebec government committed in the last 25 years.”   And the Quebec Auditor General has shown us why in her 2023-24 report, reflected in the charts below. 

The first chart shows us the results for on-site quality evaluations by the Ministry.  The other shows us the percent of centres that fail to meet the current requirements for fully-qualified staff (which is one out of every two staff).  Together they indicate that for-profit child care, which seems to be Peter Jon’s preference for the rest of Canada, is much lower in quality and cuts costs by avoiding hiring the required numbers of qualified staff, compared to the not-for-profit CPEs. 

So, yes, there are good reasons to want space creation to take place predominantly in the not-for-profit and public sectors.  Relying on for-profit expansion may seem faster and cheaper in the short run, but at what cost for our children’s future?

  1. Enrolment

It’s true that there are too many existing licensed spaces that are empty or not operating.  The Auditor General of Ontario found this was true of 27% of the funded spaces in Ontario, but it is also true elsewhere.  The substantial majority of this is due to staffing shortages.  Early Childhood Educators in most of Canada require a college education to be a fully-qualified educator, but they earn wages that are surprisingly low.  As a result about half of all new hires in child care do not stick around for very long.  Recruitment and retention of staff both fall well behind what is needed. 

However, empty spaces suggest a solution different from Peter Jon’s – raise educator wages and benefits closer to the average wage in the province or territory.  I’m sure that many trained educators currently working in retail and elsewhere will come flooding back to allow the spaces to open.  Families would be happy, educators would be happy and the child care system would be more stable.  The number of parents having difficulty finding child care would drop fast.

  • How many children benefit?

Peter Jon says that most children in Canada don’t benefit from CWELCC.  CWELCC is intended to be a universal program, but that doesn’t mean that everyone will want to use child care from their child’s birth through until school.  Many families take a year or more off after a child’s birth using maternity and parental leave to spend time with their infant.  Many families live in jurisdictions with full-day kindergarten, sometimes for both four and five year olds and don’t need additional child care beyond that.  Some parents want to stay home with their young child and do not need child care. 

If we looked only at families where the main caregiving parent was employed, was not on maternity/parental leave, and whose child was not in kindergarten, then already in 2023, 62% of Canadian children were enrolled in and attending some form of licensed child care across Canada, most of it receiving federal funding.  We still have a way to go to serve all children who need or want good quality affordable child care, but we’re much farther forward than Peter Jon says we are.

  • Is it true that nearly 30% of centres are not in CWELCC?

In fact, there are very few eligible centres not enrolled in the CWELCC program.  Mr. Mitchell should be more careful with his “facts”. 

The source he cites looks at centres serving children 0-12. This data source says that only 71% of centres said they were enrolled in CWELCC.  But many of these centres serve only school-age children and these centres are not eligible to get federal funding, which is only for children 0-5. 

Ontario is the province (outside Quebec) with the largest number of centres that are not part of CWELCC and as of March 31, 2025, 91.8% of all centres serving children 0-5 in Ontario were enrolled in the CWELCC program.

  • Child care enrolment by low-income families

This is a serious issue, but Peter Jon misunderstands it.  It is true that the Auditor General of Ontario recently found that the number of children receiving child care subsidies in that province has declined by 31%.  But that is compared to 2019 before CWELCC started, and the decline in subsidies before Ontario signed onto CWELCC was more rapid than since that time.  

 There is a legitimate worry that not enough low-income families will be able to access newly available spaces.  The Auditor General cited favourably a program in one region where a percent of spaces in each centre are reserved for children receiving child care subsidies.  This might be a useful reform that I hope Peter Jon would support.  Already, there has been a strong prioritization for child care expansion in Ontario to favour underserved areas with more vulnerable populations.

However, rather than look only at subsidies, there is more comprehensive data on child care use by family income that comes from a 2023 parent survey done by Statistics Canada.  Here’s what it shows:

The data suggests, yes, that access to licensed child care by lower income families is not as high as for the more affluent.  But the differences are probably smaller than you thought they were.  I don’t mean to minimize the issue.  Most studies show that children from lower-income or vulnerable families are especially likely to benefit from quality child care.  So working on this issue is a high priority.  However, the sky is not falling.  It is just a persistent problem that provincial and territorial  child care systems need to address.  In fact, it is a persistent problem in child care systems, no matter how they are funded, often less so the more universal the service is.

Instead of trashing the $10 a day child care program, maybe Peter Jon Mitchell should spend his time lobbying the Alberta Government to re-instate the child care subsidy system that they completely eliminated  this year!  This will definitely hurt lower and middle income families in Alberta.  The Alberta Minister complained at the time that federal funding regulations did not allow him to fund a targeted program like child care subsidy.  However, he had a subsidy system receiving federal funding ever since signing the CWELCC agreement with Ottawa, and nearly all other provinces have child care subsidy systems, so that excuse is untrue.  Alberta should re-instate its subsidy system as part of its CWELCC funding. 

What is to be done?

The $10 a day child care program is only partly developed and is far from perfect.   Much more affordable licensed child care is now wanted by many more parents.  Of course.  And expansion of services is too slow. There is little capital funding and too little planning for expansion of not-for-profit child care.  Also, crucially, child care wages in most provinces are too low to attract qualified educators. 

Making child care more accessible is central to the health of the program.  I hope Mark Carney recognizes that in the upcoming budget.  After all, isn’t a universal child care system a pillar of the new economy that families with children need – the kind of nation-building project that will make Canada stronger, fairer, and more affordable?

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    8 things to know about $10-a-day child care

By Martha Friendly, Executive Director, Childcare Resource and Research Unit, and

Gordon Cleveland, Associate Professor of Economics Emeritus, University of Toronto Scarborough

  • Many more children are in licensed child care (especially centres) now than before the $10-a-day program

In 2023, 177,900 more 0-5 year olds were reported by Statistics Canada to be in child care centres than at the end of 2020 just before the $10-a-day program began. 

  • Nearly a million Canadian 0-5 year olds already benefit from low-fee licensed child care

938,000 children are using licensed child care that is eligible for the $10 a day program, according to 2023 Statistics Canada. If we add four and five year olds in kindergarten, and children at home with parents on parental leave, a total of 1.5 million young children are benefitting from public programs that support the care of young children as well as mothers’ employment and family incomes.

  • There is considerably more licensed child care than ever before

Between 2015 and 2023, the number of child care spaces for children 0-12 grew by 426,203 to a total of more than 1.6 million licensed spaces, despite the negative effects of the pandemic on child care services and mothers’ employment.

  • For the first time ever, child care has been made affordable for parents across the  income spectrum

In eight provinces and territories (including Quebec), parents now pay $10-a-day or less for licensed child care. In the other jurisdictions, fees have been substantially reduced by provincial/territorial fee reduction or are provincially set. The fee changes mean that parent fees are between one-sixth to one-third of the fees before the $10-a-day program, depending on the province/territory.  In addition, all provinces and territories except Alberta have fee subsidy programs to lower child care fees further for parents with particularly low incomes.

  • Waitlists for licensed child care were always long but have grown
    Although nearly a million Canadian children are benefiting from low-fee child care, there are too few licensed spaces and many families are still on waiting lists. Nearly 50% of child care users reported difficulty finding a space in 2023— about 10% more than the nearly 40% reporting difficulty finding care in 2020 before the CWELCC program began. 

Many employed families who use other child care arrangements can claim financial  assistance from the Child Care Expense Deduction, and most families with young children also receive the Canada Child Benefit – income support to help families with child rearing costs.

There is good agreement that provinces and territories must speed up expansion of spaces and hiring of qualified staff to reduce waitlists. To support this, federal government has made $625 million for child care infrastructure available to provinces and territories and allocated $1 billion of low-interest loans and grants for child care expansion to be distributed by the Canada Mortgage and Housing Corporation.

  • The $10-a-day child care program is very popular with parents, so demand for licensed child care, especially centres, is high.

Already in 2023, three-quarters of children in any form of non-parental child care were in licensed child care. On top of this, a majority of those not currently using any non-parental child care said they would like to use it too. Of these, 62% would prefer to use a child care centre.

  • For-profit providers are not being driven out of business

Mr. Poilievre claims that for-profit child care providers are being driven out of business. Agreements signed between the federal government and the provinces and territories included all existing child care providers willing to lower parent fees and provide accountability in exchange for very substantial, reliable public funding.

For-profit providers unwilling to participate in the low-fee program may set their own fees instead of relying on government funding.  The agreements with provinces and territories specify that new spaces should be primarily in not-for-profit or public centres or in licensed family child care homes. This protective provision is intended to ensure that higher profits should not be the predominant rationale of a system of publicly funded services for children and families.

  • Pierre Poilievre’s “freedom and flexibility” child care policy would raise child care fees

Opponents of publicly funded universal child care claim that the $10-a-day plan is a bad idea—“a massive top-down bureaucratic system”, “one-size-fits-all”, and “worse today than when the Liberals took office”, arguing instead for payments to parents. Pierre Poilievre’s alternative is “more flexibility and freedom for parents, provinces, and providers”.

In other words, Mr. Poilievre’s alternative would allow provinces to eliminate the $10 a day program. Instead, providers will have the flexibility and freedom to set their own parent fees, and provinces will have the flexibility and freedom to use federal funds to support unregulated child care or favour for-profit operations. Slashing red tape will mean child care providers will no longer need to account for how they spend billions of dollars of funding.

Mr. Poilievre’s alternative is to go back to the previous scarce-space, high-fee, market-model child care. This didn’t work during the nine years in which the Harper government (of which Mr. Poilievre was a member) tried out its market model, and it won’t work now. 

April 14, 2025

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Does Tax Credit Funding Work for Child Care?:  Lessons from Australia

Many Canadians do not seem to realize that funding child care with tax credits would mean having no control over child care fees.  Plus, there would be no financial accountability by operators for the public money they receive.  Right now, child care fees are controlled in Canada – in eight of Canada’s thirteen jurisdictions, the fee is $10 a day.  By April 2026, parent fees will be limited to $10 a day across the country.  If we switched to tax credits (as the Conservative Party recommended in the last election), there would be no limitation on parent fees and no financial accountability for billions of dollars of public money.  Child care operators could charge whatever the market would bear.  And so, for many families, child care would be unaffordable once again.

I’m in Australia right now.  It’s a gorgeous, sunny country with great restaurants, stimulating and dependable coffee, and very friendly people.  But they have problems with their child care system that we can learn from.

You can give money to parents to fund their spending on child care; mostly, that’s what Australia does.  Or you can fund the services to ensure that they will be available and affordable; mostly, that’s what Canada now does.  The first is called demand-side funding.  The second is called supply-side funding. 

Demand-side funding comes under different names – a tax credit or a voucher or a parent subsidy; it amounts to the same thing.  Australia has a Child Care Subsidy; there are bigger subsidies for low-income families and smaller subsidies for high-income families.  The payments are made to the family’s chosen child care provider (from amongst approved child care providers), based on the amount of child care used.  The parents have to pay whatever child care fees are not covered by the subsidy.

Australia has a market-based child care system.  There are standard regulations on employee qualifications, staff-child ratios, health and safety, and so on.  But, there are no effective government controls on the fees that are charged by providers and centres can be established wherever they choose – usually where it is most profitable.  The majority of providers in the system are for-profit corporations and entrepreneurs. 

Australia gives Canadians a chance to see how demand-side funding works in practice.  And, I would argue, Australia gives a “best case” scenario for this approach.  Australians have tried very hard over the years to make this subsidy/tax credit approach work equitably and efficiently for all families and they have done a lot to promote higher quality in child care services.  I would argue that if Australia can’t make a demand-side funding system work effectively to make child care affordable, accessible and of high quality, then no one can.

In this context, the November 2024 report by Dr. Angela Jackson, Lead Economist for Impact Economics and Policy is well worth a read.  The report – Time to Stop Throwing Good Money After Bad – was commissioned by the Minderoo Foundation, a charitable organization founded by Dr. Andrew Forrest (former CEO of the Fortescue Metals Group) and Nicola Forrest.  The report provides an assessment of Australia’s child care funding and management system.

I think the best place to start is to look at two charts that Dr. Jackson features in the report. 

Figures 4 and 5 are copied from her report.  Figure 4 covers the period from 1991 until 2023.  What you see are two lines.  One is relatively straight, showing how the Consumer Price Index has risen pretty steadily over this period of 32 years.  The fiscal year 2011-12 is the base year and gets an index value of 100.  Compared to that, the average price level in the economy has risen from 50 back in 1991 to 140 now.

The second (yellow) line is very jagged. It goes up, then falls, then rises rapidly, then falls.  Again and again.  This line shows the “out of pocket costs” of child care.  Out of pocket costs are the amounts that parents actually pay for child care after accounting for the child care subsidy they receive.  When government increases the subsidy, the out of pocket costs go down.  When fees charged by child care operators rise but the subsidy stays the same, then out of pocket costs rise. 

In the battle between rising child care fees and increasing levels of subsidy, child care fees have been winning.  Overall, the amounts paid by parents have been rising faster than inflation despite subsidy increases. 

In Australia, there were major infusions of funding and reform of child care policy in 2000, 2007, 2008, 2018 and 2023.  In 2020, during the pandemic, child care services became free for those continuing to use them.  We can see each of these events on the chart as a sudden drop in the yellow line.   

But none of these funding infusions have stopped the upward march of child care fees. Out of pocket costs of child care have increased quite a bit faster than inflation over this 32 year period DESPITE many government attempts to improve tax credit/parent subsidy funding arrangements to make child care more affordable.  Child care has become, on balance, less affordable, not more affordable.  In 2023, after Child Care Subsidy is accounted for, the average out of pocket cost of child care for parents in Australia was $44.42 per day (or over $11,500 per full year).

By how much have child care fees risen over this time period?  Figure 5 provides this information.  It includes the two lines from the previous figure but adds a new one.  This third (red) line, rising above the other two shows the amount by which the cost of child care to parents would have risen had there been no improvements in child care subsidization. The underlying costs of child care have risen by 499.9% over this period – much much faster than the rise in consumer prices!  In 2023, before subsidy, the average child care fee for full-day care in Australia was $133.96 (or nearly $35,000 for a full year).

This pattern continues to this day.  As Dr. Jackson notes, over the last 12 months child care fees have increased by 10.6%, which has eroded the benefits of the new $5 billion child care expenditure program begun in July 2023.

The Australian Competition and Consumer Commission, which held an inquiry into costs and prices of child care providers in 2023, described this repeating pattern accurately:

 “when government subsidies increase, out of pocket expenses decline sharply in the immediate term, but then quickly revert to levels preceding the subsidy change.”

Is this pattern a glitch?  Or is it a feature that we should expect to observe if Canada were to adopt a tax credit system for funding child care?  Those who support tax credits emphasize parent choice and flexibility.  What they do not tell you is that tax credit systems mean that there is NO CONTROL over the fees charged by child care providers.  There is no regulation of the decisions that corporations and entrepreneurs make about where to locate their services.  And further, there is no requirement that child care providers account for the ways in which they spend the billions of dollars of government money they will be receiving when subsidized children attend their facilities.

With a tax credit system, additional government spending largely benefits providers, not families.  True enough, this very generous funding system has encouraged providers to expand.  There were enough centre-based spaces for only 7% of Australia’s children 0-4 years of age back in 1991 and there is now coverage for 42% in 2022.

Since there is little control over where providers locate, access to child care is concentrated in wealthier areas where providers can charge higher fees.  24% of Australia’s households with children are located in child care deserts.

The large majority of providers in Australia are for-profit enterprises.  And for-profit providers have been found, in Australia as elsewhere around the world, to provide lower quality child care on average.  Australia has put a lot of resources into measuring quality of services.  Their quality rating system has five result categories: Significant Improvement Required, Working Towards National Quality Standard (NQS), Meeting NQS, Exceeding NQS,  and Excellent.  35.4% of not-for-profit providers are rated as Exceeding NQS or Excellent.  Only 12% of for-profit providers reach the same levels.  Further, for-profit providers have been found to be half as likely to increase their quality ratings over time as the not-for-providers are.

Viewing the Australian experience with a Canadian lens, the tax credit approach has many weaknesses.  In a tax credit system, the only way to make child care affordable for parents is through substantial infusions of government funding.  However, if substantial government funding is combined with providers having the freedom to set and change their own fee levels, then the result will be rapidly rising fee levels and reduced affordability. On top of that, there is no requirement for child care operators to account for how public money is spent.

In theory, competition among providers is supposed to bring fees down and force providers to offer better quality of care.  In practice, competition is very imperfect, partly because child care markets are very localized, so few providers compete directly with each other.  Competition is also imperfect because parents can only perceive and evaluate child care quality imperfectly. 

So a tax credit or voucher system pushes up child care costs, profits and fees but delivers child care that is expensive for governments, unaffordable for many families and very uneven in quality.  Governments get into a cycle of additional spending to bring out of pocket costs down, then watching as provider fees rise to make child care unaffordable once again.  Whatever its growing pains, $10 a day child care is a much better bet than tax credits to provide affordable, accessible, quality child care.

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However, Supplementary Subsidy Funding Plays A Positive Role
Most Canadian provinces and territories have child care subsidy systems that are supplementary to their main way of funding child care.  The effect of this is positive.  The main funding is on the supply side – funding to operators in exchange for child care services made available to families.  On top of that, most provinces and territories have a subsidy system that can lower the parent fee from $10 a day (or, currently, a higher fee in five Canadian jurisdictions) for low-income or multiple-child families that cannot afford $10 a day.  Most of these subsidy systems are imperfect, but they serve the very important purpose of ensuring affordability for all families, even those who cannot afford current reduced fees.
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Is Minister Jones Going To Take Away Your Affordable Child Care?

It’s Family Day in Alberta today (February 17th).  And Matt Jones, Minister responsible for child care in Alberta,  apparently wants to celebrate by making plans to leave the child care agreement  that will bring $15 a day child care to the province on April 1st.  And he wants to blame the federal government while he does it.  But the truth is, most decisions about child care in Alberta are entirely in the hands of the provincial government.

Take the cancellation January 30th of Alberta’s child care subsidy program that helps low-income families.  Matt Jones cancelled it, as part of the move to a flat child care fee of $15 a day.  He didn’t have to do that.  Every other province and territory outside Quebec has a child care subsidy program targeted at low-income and otherwise vulnerable families as part of their move to $10 a day. Alberta’s agreement with Ottawa committed to an “average fee of $15 a day” in 2024-25, not a flat fee of $15.   Why did Alberta have to cancel the subsidy payments?  No reason at all. 

And then Minister Jones had the gall to say that Alberta might have to withdraw from the $10 a day program because the federal government doesn’t allow him to target support to parents that need it the most. In an interview with LakelandTODAY.ca, the Minister said:  “The current federal agreement is not flexible to allow us to income test, say households earning under a certain amount of income.”  Which is plainly untrue.

In a Facebook post, Minister Jones cited other reasons for planning to withdraw child care support from Alberta families.  He said that the program is underfunded by Ottawa, by more than $4 billion over the next few years and that the child care agreement that Alberta voluntarily signed back in November 2021 is “unfair to the majority of child care providers”.

This week the federal government offered Alberta and other provinces the chance to extend existing child care agreements for another 5 years and receive more money to do so.  But, Mr. Jones wants even more money and he wants flexibility.  And if he doesn’t get it, Alberta will pull out of the $10 a day child care program.  As he puts it in government-speak, Alberta “will be forced to transition out of what is, and will be, an unsustainable program.” 

In 2025-26, Alberta will be getting nearly $1.1 billion through this agreement to support low-fee child care.  In its agreement with Ottawa, Alberta calculated that it could lower fees to $10 a day for 134,691 children for a cost of much less than that – for $829.93 million.  What changed? Unless Alberta child care costs are completely out of control, there should be enough money right now.  So, why not sign on to continue the program? 

Minister Jones real reason for being willing to take away your low-fee child care comes down to “flexibility”.  “Flexibility” is a code word.  In 2021, Alberta agreed to expand home child care and not-for-profit child care spaces by 42,500 and for-profit child care spaces by only 26,200.  Two-thirds of Alberta’s child care spaces are commercial now, so extra expansion of non-profit facilities would provide some balance and choice for families.  Minister Jones wants to wiggle out of that agreement.  That would be called “flexibility”.  Apparently, the evidence that non-profit child care services are stronger promoters of high quality is unimportant to Minister Jones. 

Frankly, Minister Jones reasons for not signing on to continue the $10 a day child care plan are flimsy.  I think he is in the pocket of that portion of commercial operators who want to be able to charge whatever fee they want, and earn whatever profit amount they can get away with.  He might call that giving money to parents in the form of a tax credit.  But we know that it means no more limits on parent fees – no more $15 a day child care or $10 a day child care.  And that would mean unaffordability for parents.  Not a good plan.

The purpose of the $10 a day agreements between provinces and territories and the federal government is to ensure that low-fee child care services are available to families and children when and where they want them.  Not every family wants to use child care throughout a child’s early years.  But most Alberta families use child care for some time as their children grow.  For instance, 61% of Alberta’s children who are 4-5 years of age and not yet in kindergarten use licensed child care.   Many more want an expansion of low-fee child care services.  In my opinion, Minister Jones should sign on to continue the $10 a day child care funding for Alberta parents and children.

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A Fact-Based Response to Cardus’ Odd Assertions

Since its beginning, Canada’s plan to build a system of child early learning and child care – the “$10 a day plan” –  has been panned by a handful of players. These include spokespeople for some political parties, some child care centre owners, right-wing “pundits”, and social and economic conservatives, all with their own agendas. Relying on misrepresentation of research literature, misinterpretation of public opinion polls and Statistics Canada surveys, the common agenda is to paint the $10 a day plan as a “failure” and “disaster” rather than the first largely successful phase of a Canada-wide project to build a workable child care system for all families and children over time.  (Really, it is the second phase because back in 1997, Quebec began to build a largely successful and largely universal low fee child care system of their own).

This blog comments on a policy brief published  by Cardus in November 2024.  Cardus advertises itself as a non-partisan Christian think-tank; it takes a socially conservative approach and promotes ways of thinking that pre-date the Royal Commission on the Status of Women that reported in 1970.

Cardus would have you believe that very few Canadian children and families benefit from low fee licensed child care.  Cardus’ staff members Mitchell and Mrozek have written that: “…most Canadian families receive no benefit from the billions spent – only 29% of children aged 0-12 had access to a licensed space in 2021.”  (November 2024).  It’s a pity that Mitchell and Mrozak inappropriately use data on children 0-12 years to reach this conclusion.  Most of these children (the 6-12 year olds) are not even covered by the new funding programs to make child care universally affordable for families.  Cardus should instead have informed themselves with the latest Statistics Canada data (the parent survey in 2023 that looks at children 0-5 years of age).  It’s called the Canadian Survey on Early Learning and Child Care.  Or, Cardus could have read the report entitled Giving Parents Money Doesn’t Solve Child Care Problems published by the Prosperity Project in September 2024.  It provided much of the same data we include in this blog.

Many families already benefit from low fee child care

If Cardus had consulted the appropriate data, they would find out that the truth is somewhat different from their biased conclusion.  The latest data are from 2023, two years after the beginning of the $10 a day program and about 25 years since Quebec began phasing in universal child care.  There are about 2.2 million children 0-5 years of age in Canada and close to a million of them (938,000 children or 42% of all children) are already using licensed child care. 

Families prefer to use licensed child care

In fact, 75% of the children 0-5 years of age who use any kind of non-parental child care in Canada now use licensed child care.  About 1.25 million children 0-5 regularly use some form of non-parental child care and 938,000 of them are using licensed child care.

Licensed child care provides strong support of parental employment

A major reason why governments in Canada are spending billions of dollars to provide low fee child care is to support parental employment.  And this support of parental employment is happening.  According to the recent Statistics Canada parent survey, 59% of parents (mostly mothers) whose main activity is working at a paid job or business already use licensed child care for their young children.  Many others – another 115,000 who are on a waiting list – would like to use licensed child care and will happily do so when more supply becomes available.

Child age and availability of kindergarten explain patterns of use of licensed child care

The demand for licensed child care is strongly related to the child’s age.  Parents with  children less than two years are less likely to use licensed child care, so satisfying the demand for licensed care does not mean having spaces for 100% of children.

When considering child care use, it’s important to take other family or education programs into account.  For many families with very young children, parent-only care during maternity or parental leave is their choice.  For many children who are already in full-school-day kindergarten at four or five years of age, they do not need or their parents do not want supplementary child care. 

Across Canada:

  • 24% of children younger than two years of age  are in licensed child care.  In this age bracket, 62% are in parent-only care, with many of these parents on maternity or parental leave. 
  • 55% of all children in Canada who are two or  three years of age currently use licensed care. 
  • 68% of all four- and five-year-olds who are not yet in kindergarten currently use licensed care. 
  • But, when those four- and five-year-olds reach kindergarten, the use of licensed child care drops to 33%.
Percent of Canadian Children Using Licensed Child Care by Age Group and Kindergarten Attendance, 2023

From the Public User Microdata File of the Canadian Survey on Early Learning and Child Care, 2023.

Licensed Child Care and Low-Income Families

The other main claim in Cardus’ brief is that low-income families do not get much access to child care services when child care is universally funded. The implication is that low-income families would be better served by a targeted child care program.  And that universal $10 a day child care will mostly serve affluent families rather than those who have low-incomes.

There are two problems with this.  First, the use of licensed child care by low-income families is already larger than you might imagine.  In Canada outside Quebec 36% of children with employed mothers from the lowest income group use licensed care.  And in Quebec, 68% of children with employed mothers from the lowest income group are in licensed child care.

 Second, Cardus has identified the wrong culprit for the important inequities that remain.  It is market-driven child care that disadvantages low-income families.  It is universal  child care that does a better job of welcoming the participation of low-income children to licensed child care. 

We can see this by comparing access to licensed child care for different income groups where the mother is employed in provinces outside Quebec to the same data from Quebec.  Two conclusions are obvious in the charts below.  First, in Quebec, a much greater percentage of children from these low-income families are able to access licensed child care than is the case in the rest of Canada’s provinces.  Second, the gap in access between the lowest and highest income groups is much smaller in Quebec than it is in the rest of Canada.  As before, this data is from Statistics Canada’s recent parent survey. 

What’s the explanation?  When child care fees were uncontrolled (as they were in Canada outside Quebec until 2021 or 2022) many families have found licensed child care to be completely unaffordable.  Most low-income families were squeezed out.  Targeted child care subsidies were not enough to reverse this trend.  Naturally, the majority of child care users were from more affluent families.  But this was a result of the mostly unrestricted operation of the free market in child care, not the result of a massive program to lower fees. 

Percent of Children in Licensed Child Care by Income Group in Canada outside Quebec when Mother is Employed

From the Public User Microdata File of the Canadian Survey on Early Learning and Child Care, 2023.

Note: * The vast majority of parents responding to the survey were mothers

Percent of Children in Licensed Child Care by Income Group in Quebec when Mother is Employed

From the Public User Microdata File of the Canadian Survey on Early Learning and Child Care, 2023.

Note: * The vast majority of parents responding to the survey were mothers

As Cardus would know if they had looked at the federal-provincial-territorial agreements that have brought us the $10 a day child care program, improved equity in access for children from different backgrounds is a key objective of the federal program.  There are substantial federal, provincial and territorial efforts to ensure that new child care capacity is directed towards underserved populations – low income children, vulnerable children, children from diverse communities, children with special needs, and Francophone and Indigenous children.  Still, there is too little access to licensed child care for low-income families – on this we agree with Cardus.  But eliminating funding support for child care services and instead paying money to families to stay at home is the opposite of a solution to this problem.

Cardus wants to make child care unaffordable again

Cardus does not really want financial support for licensed child care at all.  Instead, Cardus wants us to return to some version of Stephen Harper’s Universal Child Care Benefit.  They estimate that if the federal spending on the $10 a day child care program was divided equally amongst families instead of going directly to day care centres to lower fees, each family would receive $3,869 per child, per year.  But, right now, families using low fee child care are receiving $5,000 – $15,000 in child care fee reductions.  With the end of direct funding of child care, child care fees would soar and nearly a million families would be much worse off than they are currently. Child care would be unaffordable once again, and mothers would be squeezed out of employment by high fees.  How is that a sensible and affordable child care policy?  No wonder 75% of Canadians think that a Conservative government, if elected, shouldn’t end the $10 a day child care program.

There Is still a lot of work to do to build a $10 a day child care program for all the families that want to use it – especially in expanding the qualified workforce and the supply of services.  But already many Canadian children and families are much better off than they were in 2021.  The priority now is to finish the job of providing affordable, accessible, quality child

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Affordable Child Care Services vs Money for Parents

Those who oppose the $10 a day program often argue that there is a simple and better program to replace it – give money directly to parents instead.  The logic is, at first glance, persuasive.  If you give parents money, it seems like they should be able to purchase exactly the child care they need.  And competition among different providers should, you might think, keep fees down.  Programs that directly fund child care services, like the $10 a day program, are said to be bureaucratic and inflexible and to create huge shortages and long waiting lists. 

There is some truth here, but much falsehood, and much deliberate ignoring of the evidence on the impact of a “family allowance” approach.  I have just written a report for The Prosperity Project that examines the likely impacts of giving parents money instead of funding and providing child care services that parents can use.  I unearth a lot of new data about families that are using child care in Canada and the number of parents who want access to affordable, accessible, high quality child care. 

The evidence shows that this type of “family allowance” fails as public policy because it:

(a) isn’t what most families want

(b) doesn’t address families’ needs for child care

(c) would be much more expensive than the $10 a day program

(d) would have negative effects on women’s employment and the economy, and would increase the gender-based child penalty that mothers pay with reduced earnings

(e) has been tried before and hasn’t solved child care issues, and

(f) ignores the very large child benefit programs that already provide money to parents.

You should read the report in full (19 pages), or at least its Executive Summary (3 pages).  Below, I provide a few tidbits to encourage you to dig deeper.

  • As of 2023, when Statistics Canada collected large amounts of data from parents about child care and employment, there are 938,000 Canadian children using licensed or accredited child care services – the kind of services supported by the federal government program.  In fact, over three-quarters of children using any kind of child care are in licensed care.   In 8 of Canada’s 13 jurisdictions, average fees for this child care is down to $10 a day or less.  Other jurisdictions have lowered fees by at least half relative to fee levels in 2019-20.  In other words, although the press scarcely covers it, a very large number of Canadian children and families are already benefiting from licensed child care that is subsidized to be affordable and more accessible.
    • Licensed child care is not the only part of the set of services and benefits that will make up a fully developed early learning and child care system.  Many children benefit from full-day or part-day kindergarten at ages 4 and 5 years.  Many children and families benefit from paid maternity and parental leave for up to 12 or even 18 months.  If we put these all together, it is already true that in 2023 over 1.5 million children currently benefit from Canada’s early learning and child care and leave arrangements.  That is about 2/3rds of all children 0-5 years of age.  
    • Some people think that the reason some parents don’t currently use child care is because they don’t want to.  But, outside Quebec, most families (58%) that currently do not use any child care would like to use some type of non-parental child care if they can find what they need and want.  And, of these, the lion’s share – 62% – would like to use licensed child care, largely as a means to join or rejoin the workforce. 
    • Some people argue that it is mostly affluent parents that benefit from universal child care programs and that marginalized families and those from diverse backgrounds are left behind.  That is certainly true of market-based child care systems when fees are not controlled; high parent fees are only affordable by affluent families and many vulnerable families do not qualify for income-based subsidies.  However in fixed-fee systems like the $10 a day program, families from all backgrounds gain access.  I show a series of charts from Quebec making this point.
    • A family allowance program would have to give parents an amount of money that was equivalent, on average, to what they gain by having $10 a day child care.  This family allowance program would cost the federal government just over $28.5 billion annually and its net cost would be three times as much as the cost of providing child care services.  
    • Women who have children suffer substantial losses in earnings after the birth of a child.  Economists have found that mothers’ earnings decrease by 49% in the year of a child’s birth.  Even ten years later, women suffer from an average earnings loss of 34% relative to their earnings before childbirth. Universal child care has been found to substantially reduce these “child penalties”.  In other words, accessible child care services make an important contribution to increasing gender equity.

    Please read the full report and executive summary. 

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    Supply-Side or Demand-Side – A Contribution to the Australian Discussion

    John Cherry, from Goodstart Early Learning, has written an evaluation of child care in Quebec and New South Wales.  Apparently his purpose is to determine whether supply-side funded systems (like Quebec’s) are better or worse than demand-side funded systems (like in Australia). 

    To summarize briefly, John finds that Quebec does better on workforce participation and affordability, NSW does better on child care accessibility and quality.  So, John concludes that Australia’s system is pretty good.  His conclusion appears to be that Australia shouldn’t flirt with Quebec’s fixed-fee, supply-side-funded system. 

    It’s a problematic paper for several reasons.  First, some of the details about Quebec are wrong.  Second and more fundamentally, only part of Quebec’s child care system is supply-side funded and charges parents a fixed fee of approximately $10 a day.  The other part (about 20% of the total) is demand-side funded like in Australia.  In the demand-side-funded part, child care providers can set whatever parent fees the market will bear and some of this later gets reimbursed to parents.  So, some of John’s comparisons, particularly on affordability and quality, are actually comparing a mixed system (Quebec) to a demand-side-funded system (New South Wales).  These comparisons don’t tell us much about how a supply-side funded system would perform in Australia.  Third, John does not explain how a demand-side funded child care system can deliver what we want from a universal child care system – dependably low fees, financial accountability for public funds, and planned expansion of capacity according to need.  Let me explain.

    Much of John’s paper is captured in Table 1 – Summary of ECEC Indicators.  There’s a column for Quebec and one for New South Wales, comparing results on different indicators of ECEC health.  I reprint it below.

    Workforce Participation
    John agrees that Quebec does a better job than New South Wales in workforce participation.  Absolutely true.  85% labour force participation for Quebec mothers with young children vs 71% in Australia.  Add on top of that the fact that most Quebec mothers work full-time vs. Australian mothers mostly part-time and it does appear that a fixed low parent fee really does have a very substantial impact on mothers’ employment. 

    Affordability
    John then presents comparisons of affordability, but his numbers are too generous to New South Wales and not generous enough to Quebec.  The differences in parent fees between supply-side funding and demand-side funding are much bigger than he admits.  On NSW, John calculates that for a family with average income, the parent fee for a first child is $29.50 per day and for a second child it is $10.05 per day.  In fact, the Productivity Commission draft report says that the average per child out-of-pocket parent fee across Australia (and therefore likely in NSW) is just shy of $45 per day. That includes the extra charges for centres open more than 10 hours per day, where parents have to pay the full fee for these extra hours even though they don’t use them.

    And the Quebec numbers on parent fees are too high.  In the supply-side funded centres and family homes, the daily fee for every child in 2024 is CA $9.10 (or about AU $10).  The figure John quotes for Quebec of  CA $17.20 per day includes the children who pay $9.10 but it also includes the high parent fees paid by demand-side funded parents before the tax credit reimburses them.  In a fair comparison, Quebec’s child care is cheaper than in NSW by a considerable amount, not just by a little bit.  That helps us understand why mothers’ employment has been so responsive in Quebec.

    Accessibility
    Then there is accessibility.  According to John, NSW scores high on accessibility of child care.  But, he chooses a strange way of measuring it.  He chooses the growth in the number of centre-based child care spaces in the last 5 years.  NSW has added more child care spaces so therefore he concludes that accessibility is better in NSW.  

    A much better measure of accessibility would have been the coverage rate – what percent of the child population could be accommodated in approved services (licenced services in Canada).  John provides these numbers on page 6 of his paper, but not in Table1 and not in his conclusions about accessibility.  In fact, as he records, about 75% of  children 0-5 in Quebec are in early childhood services.  This compares to about 60% in New South Wales.  John makes a big deal about services growing in New South Wales and not growing in Quebec.  Of course, that’s what you would expect if accessibility was already better in Quebec; it wouldn’t need to grow its services as fast.  The current rate of growth of services is not a good measure of current accessibility.

    And if you compare the number of days of child care attended in Quebec and NSW, the accessibility in Quebec is even stronger.  Over 90% of the children in Quebec who attend ECEC do so on a  full-time basis, compared to about 30% in Australia (with another 25% in Australia attending 4 days a week).

    Quality
    Finally, we get to a part of the comparison between Quebec and NSW on which John and I agree.  The quality of child care in Quebec is lower than it should be, and probably is lower than it is in NSW.  The most obvious indicators of this are the child-staff ratios.  5 children to 1 staff member for very young infants in Quebec vs. 4 to 1 in NSW.  Personally, I think both of these ratios are too high for the very young, but I agree that a 5 to 1 ratio is shocking.  As is a ratio of 8 to 1 in Quebec after children turn 19 months of age. 

    Quebec is an outlier here in Canada too.  In Ontario, the required ratios are 10 children to 3 staff members for children 0-17 months, 5:1 for children 18 months to 35 months, and 8:1 for children 3 years to 6 years (except for before-and-after school care for kindergarten children).  NSW’s ratios are comparable to Ontario’s. 

    Similarly, the wage rates paid to educators in Quebec are worse than in New South Wales.  John is right on this.

    John overstates the differences in percent of educators required to be qualified.  He says it is 50% in Quebec and 100% in New South Wales.  The regulated percent in Quebec is really 66.6% or 2/3rds.  It was temporarily lower due to staff shortages during the pandemic. And the requirement in NSW is for 100% of front-line staff to be certified.  But this is a bit misleading because only 50% of the front-line staff in NSW must have an ECE Diploma or above.  The other 50% can have a Certificate III which is a qualification well below what is needed to provide good quality care for children on one’s own.

    However, the inadequate quality of Quebec’s child care system is not really evidence that supply-side funding does not work.  Instead it is evidence that Quebec services have not been adequately funded.  The history of Quebec’s system explains this.  Back in the 1990s, Quebec struck out on its own to build a universal child care system, without any funding from Canada’s federal government.  Relying only on its own funding, Quebec ended up cutting corners on quality.  If New South Wales were operating either a demand-side funded or a supply-side funded system with no Commonwealth funding – relying only on state funds – I am sure that quality would suffer too.  But Quebec’s history is not New South Wales’ inevitable destiny.  With strong Commonwealth commitment to spending on universal child care, New South Wales can have both supply-side funding and good quality care.  As you can see in John Cherry’s Table 1, public funding of child care in New South Wales is already 50% higher than in Quebec – AU $5.7 bn vs. AU $3.7 bn annually.

    What Conclusions Should We Draw From This Comparison?
    I understand John Cherry and Goodstart’s hesitation about a switch to supply-side funding.  It would be a big transformation of funding arrangements and would constrain the power of child care operators to set their own fee levels.  If it was done badly, it could have negative effects. 

    However, I think John and Goodstart need to explain how they will build a publicly-accountable universal low-fee high-quality child care system on Australia’s existing demand-side funding base.  In my opinion, they need to answer (at least) three questions.  How would they guarantee that the system will have low child care fees in the future?  How can they build financial accountability for public funds into the existing system?  And, what mechanisms of public planning for location of new services can ensure an equitable and efficient growth of new services in Australia?

    Australia has seen parent fees rise consistently as public funding has increased over the years.  The average parent fee per child is now about AU $135.00 per day.  Every time the Commonwealth government pours more money into the system, out-of-pocket child care fees fall temporarily.  After a short while, these out-of-pocket costs gradually rise back to previous levels.  Nothing has worked to keep fees down in the long term.  Supply-side funded systems guarantee low dependable out-of-pocket fees.  Until Australia’s demand-side-funded child care system can provide the same guarantee, it cannot be considered a good basis for a universal system.

    In a universal child care system, the vast majority of operator revenues come from governments.  It is unacceptable to continue to have no public accountability for these substantial amounts of public funds.  Currently, child care operators do not have to justify the fees they charge or show that public moneys are spent on legitimate costs of service provision.  Goodstart should explain how this will be remedied in their plans for a universal child care system built on the existing demand-side foundations.

    Finally, an equitable universal system of child care services needs to plan where new child care services will be located.  It cannot leave this to the whims of private investors who all want to crowd their new services into higher income areas.  How will this be accomplished within Australia’s demand-side funded system?  These are the tough questions that need to be answered by the champions of a continuation of demand-side funding for Australian child care. 

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    The Fraser Institute’s Evaluation of the $10 a Day Child Care Reforms

    This is not his best work.  Phillip Cross has had a notable career at Statistics Canada.  He’s an expert in macroeconomic trends.  But, one thing that he knows very little about is child care.    Unfortunately, he has written a short paper for the Fraser Institute evaluating the success or failure of the Canada-Wide Early Learning and Child Care reforms so far. 

    It’s bad. Almost everything in the paper is either wrong or misleading.

    So what does Phillip Cross say?

    • He says that the Canada-Wide early learning and child care program had 3 goals:

    (1) providing more jobs in the child care industry,

    (2) enabling mothers to join the labour force, and

    (3) providing better care for young children. 

    His paper will look at the first two.

    • He looks at some evidence and concludes that there has been no change in the employment trends in child care staff.
    • Then, he looks at evidence about women’s labour force participation and concludes that it has hardly changed since 2015.
    • Having concluded that the Canada-Wide child care reforms are a failure, he goes on to take pot shots at Quebec’s child care system concluding that its universal child care system doesn’t really help low-income families, wasn’t really responsible for the boost in its labour force participation, has long waiting lists due to inadequate supply, and isn’t really universal.

    Phillip Cross is wrong on all counts, contributing yet more false information to child care discussions in Canada.  There are many problems with the rollout of the Canada-Wide program across the provinces and territories – particularly slow rates of growth in child care capacity.  However, the Fraser Institute paper does not grapple with real issues and propose real solutions.

    Phillip Cross, believe it or not, ignores improving the affordability of licensed child care in his list of goals of the Canada-Wide program.  This, of course, is the greatest success of the program so far.  Hundreds of thousands of children and families have benefited from less expensive child care.  Their very high child care costs have been cut by half or more.  These parents are very happy with the marvellous success of the program.


    Employment in the Child Care Industry

    There has been substantial growth in employment in the day care industry (NAICS Code 6244) since April 2021 when the Canada-Wide program was announced.  By my reckoning, the number of persons employed in Canada outside Quebec has risen by 36.9%, a total of 32,885 additional persons employed.  Phillip Cross hides this growth in two ways.  First, he looks at Canada including Quebec, which is inappropriate.  Quebec has a mature child care system and its employment of child care staff is not growing quickly.  The focus of growth in the Canada-Wide program is on the provinces and territories outside Quebec.

    Second, Phillip Cross ignores the collapse of child care employment during the pandemic and assumes that child care employment should have grown as if the pandemic did not happen.  In fact, child care employment in Canada outside Quebec collapsed from over 100,000 at the beginning of 2020 to less than half of that a few months later.  Employment did not climb above 100,000 until March of 2022.  So, the Canada-Wide program has helped the revival of employment in the child care industry and gone well beyond.  We should celebrate this, rather than hiding it.  This evidence can be found in Statistics Canada CANSIM Table 14100201.


    Mothers in the Labour Force

    Phillip Cross concludes that the Canada-Wide program has also shown no progress in supporting mothers to enter the labour market.  According to him, labour force participation hit its peak in 2015 and even after all this money spent on child care, it has only just about reached the same level.  As he notes, the participation rate was 61.7% in 2015 and now it is just 61.5%.

    But, Cross is not looking at the right statistics.  He is looking at the labour force participation of all women 25-54 years of age.  However, most women do not currently have a child 0-5 years of age.  Women without young children would not have their labour force participation affected by the Canada-Wide child care program.

    The Fraser Institute report should instead be looking at labour force participation of mothers with children 0-5 who are the target of the program.  Here, participation rates are up by several percentage points from April 2021 to now (from 76.9% to 79.9%) even though expansion of child care has been slower than it should be.  And compared to 2015, which the Fraser Institute cites as the high water mark, the labour force participation of mothers with children 0-5 is over 6 percentage points higher now than it was then.  So this evidence of “failure” is false news and should not be left to become conventional wisdom.  This data can be found in Statistics Canada CANSIM Table 14100397.


    Quebec’s Universal Child Care System

    Phillip Cross would presumably be very surprised to hear that Quebec’s child care system is very popular with parents and with the Quebec government.  He believes that low-income families have been squeezed out of access to child care.  In fact, there is good evidence that a much higher percentage of low-income families in Quebec have been able to access child care than was true for low-income families in the rest of Canada in the period before the Canada-wide system[1]. The universal system of child care in Quebec encouraged many more low income mothers into the labour force and into using child care.  It is true, and a problem, that on average low-income families are more likely to have their children in the lower-quality for-profit child care services.  The Quebec government is expanding not-for-profit centres as a partial remedy.

    Cross claims that Quebec’s child care system is not universal.  His evidence for this seems to be that there are 51,000 families on a waiting list for child care services.  Here his lack of child care knowledge is really showing.  This is a waiting list to get into one part of their child care system – the preferred part with a fixed fee and many better quality services. 

    There is no overall shortage of child care spaces in Quebec; in fact there are many empty spaces in the for-profit child care services funded by a tax credit.  But parents don’t prefer these for-profit spaces where there is no guaranteed parent fee.  These services have been shown to be much poorer quality than the not-for-profit spaces in CPEs (early childhood centres).  So, yes, there are 51,000 children on a waiting list to get out of these tax-credit-funded spaces and into the fixed-fee services that they prefer.

    Finally, Phillip Cross tries to deny that the universal child care system in Quebec has been responsible for dramatic increases in labour force participation of mothers.  He writes that “proponents attribute the increase in female participation in Quebec to its childcare program” and “Clearly, some determinants of female labour force participation are not understood by researchers, who nevertheless loudly endorse Quebec’s initiative.”  This is a bit strange, because if there is one thing that all economic studies of the Quebec child care program are agreed upon, it is that there was a substantial boost to mothers’ labour force participation and hours of work as a result of universal child care.

    A summary of the results of one of the many studies goes like this:  “Lefebvre and Merrigan[2] (2008) use Statistics Canada’s Survey of Labour and Income Dynamics (SLID) annual data from 1993 to 2002. Using the sample of all Canadian mothers with at least one child aged 1 to 5, they find that the policy had substantial effects on a diversity of labour supply indicators (participation, labour earnings, annual weeks and hours worked). In 2002, the effects on participation, earnings, annual hours and weeks worked of the childcare policy are respectively between 8.1 and 12 percentage points, $5,000 to $6,000 (2001 dollars), 231 to 270 annual hours at work, and 5 to 6 annual weeks of work.“   

    The Fraser Institute is not noted for the complete accuracy of its studies, but this is a bit ridiculous.  As an evaluation of the success or failure of the Canada-Wide Early Learning and Child Care program, the Fraser Institute study is worse than useless. It is, perhaps deliberately, misleading. 

    Instead, we should conclude that:

    • Hundreds of thousands of children and families have benefited from more affordable licensed child care
    • There are now nearly 33,000 more persons working in the day care industry than there were when the program was announced in April 2021 – an increase of nearly 37%.  Many more qualified educators are needed, but this is a good start.
    • Even though the growth in the number of child care spaces has been too slow, there has still been a rise of 3 percentage points in the labour force participation rate of mothers with children 0-5 since April 2021.  Again, only a start, but definitely a start.
    • Quebec does have a universal child care program and many families access child care for less than $10 a day.  It is a very popular program with families.  There is no overall shortage of child care spaces in Quebec, but many families want to get into the fixed-fee part of the child care system, especially the better-quality not-for-profit CPEs.  Many of these families are on a waiting list.  A large number of low-income families have benefited from the universal child care program in Quebec, a much larger percentage than benefited from Canada’s targeted child care assistance.  There is still important work to do to ensure that low-income families also benefit equally from better quality in child care services.

    [1] Cleveland, G. (2017) “What is the Role of Early Childhood Education and Care in an Equality Agenda?” pp. 75-98 in Robert J. Brym ed. Income Inequality and the Future of Canadian Society ISBN-13:978-1-77244-044-7 Oakville, ON: Rock’s Mills Press. Proceedings of the inaugural S.D.Clark memorial symposium.  That study found that:” In Quebec, 61.8 percent of children 1-5 years with an employed or studying mother with a high school education or less use licensed child care. Including children with a mother who is not employed, 43.1 percent of Quebec children whose mother has a high school education or less are using licensed child care — about 30 percentage points higher than the comparable figure in the rest of Canada.“

    [2] Lefebvre, P., Merrigan, P. (2008). Childcare policy and the labor supply of mothers with young children: a natural experiment from Canada. Journal of Labor Economics 23, 519–548.

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    Some Thoughts About Australian Child Care Policy

    The Labor federal (i.e., Commonwealth) government of Australia has declared its intention to move towards universal child care. There is a lot of interest in the Quebec model. The Commonwealth government asked the Productivity Commission to investigate and to provide a roadmap towards universal early childhood education and care throughout Australia.

    The post below is my submission in response to the draft report of the Productivity Commission which you can find here. As you can see, my advice and comments are strongly informed by Canada and Quebec’s experiences.

    Response to the Productivity Commission Draft Report

    Main Messages

    • The final report of the Productivity Commission should lay out a 10-20 year vision of recommended steps to achieve universal affordable, accessible, high quality child care.  The recommendations in the draft report go only\ part way to universal child care.  The recommendations should include ways in which there can be guaranteed fee levels for parents, much greater financial accountability of operators, and substantial introduction of supply-side operational  funding. 
    • There should be a much stronger gender equity lens by which recommendations are judged and through which recommendations are presented.  This would affect recommendations that imply that 3 days a week is the norm for child care attendance and mothers’ participation in the labour force.
    • The commercialization of child care provision should be an issue of concern.  Child care growth has been very unbalanced; nearly all new centre-based child care for at least 10 years, and probably 20 years, has been commercial.  There are not adequate supports needed for expansion of not-for-profit services.
    • In the draft report, the description and lessons learned from the experience of child care reforms in Quebec is one-sided.

    There are some good things about the lengthy and detailed Productivity Commission Draft Report. 

    If there is not enough money to do everything right away, it is often sensible to prioritize providing child care services to children in lower-income families.  Moving to 100% subsidy and getting rid of the activity requirement for 3 days a week of child care services will address some important barriers to participation by children in lower-income families while directing over half of the additional assistance to families in the lowest 20% of the income distribution.  Even here, there are potential issues with the proposals[1].

    Getting rid of the activity requirement for 3 days a week will also help some middle-income families where parents have irregular work activity and will tend to normalize regular child care attendance for children.

    And the Productivity Commission dips its toe in the water of supply-side funding in remote communities where the profit motive clearly does not adequately encourage needed supply.  This is an important start, even if a minor one.

    However, as a guide to the pathway to universal child care in Australia,  the Productivity Commission’s draft report is disappointing.

    1. The government asked for a plan to move towards universally accessible, affordable and high-quality child care.  This draft report does not deliver this.  Instead it chooses to primarily fill one hole in the current state of accessibility – access by lower-income families.  Unless the Productivity Commission believes that all other families already had affordable access to child care (which is unlikely since the average out-of-pocket amount that parents pay for centre-based child care is $44.42 a day per child), remedying this one (important) problem will certainly not deliver universal child care. As long as there is no legislative or regulatory limitation on parent fees and no limitation on centres charging full fees for unused hours above 50 in a week, child care in Australia will be unaffordable and inaccessible for some families, perhaps many families, who have middle and higher incomes, as well as families with lower incomes.   As long as there are either financial or supply barriers that prevent access, early childhood education and care is not universal.  Frankly, despite the Productivity Commission’s mandate to study how universal child care can be achieved, there is evidence in the draft report of some bias against universal child care, reflected in the cautious nature of the recommendations and in the one-sided evaluation of Quebec’s system of universal early childhood services.

    2. The Productivity Commission’s draft report appears to reflect a view that child care markets work well in Australia, and that strong competitive pressures already compel commercial operators of early childhood services to keep costs low, expand to serve new needs and continually enhance quality.  In other words, the Productivity Commission believes that current funding and regulatory arrangements provide the appropriate incentives and controls to make child care providers serve the public interest.  Apparently, only a few tweaks are necessary to make these services more accessible.

    This optimistic view is less true than the Productivity Commission believes; the problems are larger and the need for reform is greater.  First, we know that competition in child care markets is very localised, largely because few parents want to regularly transport their children more than a couple of kilometres to a child care service.  So, each centre only really competes – on price, services and quality – with other centres close by.  Generally, that means that competitive pressures are not that strong. 

    Fees have not been kept down by competition; they have been continually rising for many years. The current average daily fee for centre-based child care is $133.96 per child. Over 20% of child care centres charge more than the hourly rate cap (currently $13.73 per hour for centre-based day care for children younger than school age), particularly for-profit centres.  There is little evidence that costs and fees are controlled by strong competitive pressures.

    One of the hallmarks of competitive markets is that prices charged are forced down close to actual costs. If the price of one product or service is much higher than its per-unit costs, we would expect profit-seeking producers in a competitive market to offer this product or service at a lower price and take a large number of customers away from existing providers. In centre-based child care, given the required staff-child ratios, the labour costs for infant care must be close to 3 times the labour costs of child care for three- and four-year-old children.  And labour costs are the large majority of total costs.  Yet, competition does not drive centres to charge much lower fees for older children than they do for infants. There is a large variation in per-child costs and there is virtually no difference in fees.  And there are long waiting lists for child care for children less than two years of age, mostly because infant care is less profitable. These facts are a strong signal suggesting that child care markets in Australia are only weakly competitive. 

    Figure 4 of the interim ACCC report suggests that average occupancy rates of large providers of centre-based day care are about 75%.  We know that occupancy rates are a key driver of per-unit costs.  In a competitive market, we would expect strong pressures on operators to cut fees in order to increase occupancy, lower per-child costs and maintain quality.  This does not appear to be widespread in child care markets.

    In short, the main mechanism that makes the Productivity Commission so complacent – competitive pressure – cannot realistically be assumed to deliver publicly beneficial results on its own.  There is a need for more public management – active market stewardship – and financial accountability.

    3. There is no realistic plan to keep child care fees from rising faster than the CPI (which they have been doing for many years)[2].  Draft recommendation 6.2 suggests a new hourly rate cap for Child Care Subsidy based on the “average efficient costs of providing early childhood education and care services”.   Unfortunately, there is no unique average efficient cost.  As mentioned above, just think of infant care with required child-staff ratios of 4 to 1 vs. care for children over 36 months of age with required child-staff ratios of 11 to 1 in many states and territories.  How could there possibly be a unique average efficient cost per unit across these different age groups?  And look at cost variations that are recognized in supply-side-funded jurisdictions.  In Quebec and New Zealand[3], for instance, child care operating payments vary across a number of important factors that drive key cost variations – staff experience levels and qualifications and pay rates, legitimate variations in arms-length occupancy costs, higher per-unit costs in thinner markets, etc.  Unless the Productivity Commission can propose a realistic set of rate caps tailored to different circumstances and a means of regularly updating them and enforcing them, this recommendation may not work.

    4. The recommendations in the report would establish 3 days a week as a norm for the number of days a mother should work.  This is negative for gender equity, which is already dramatically impacted by the almost universal assumption that women are primarily or solely responsible for the day-time care of children before school.  The draft Productivity Commission report shows that the average size of the motherhood penalty in Australia – the amount of previous earnings that is lost when mothers bear children – is 55% (!), higher than in many other countries.  The motherhood penalty is explained by lower rates of employment, lower hours per week of employment, and lower hourly pay of mothers. The Productivity Commission is doing a good thing by reducing the impact of the activity test on access to child care.  That will lower barriers to employment for mothers. However, they should recommend its elimination entirely for 5 days a week.  To me, the recommendation as it stands suggests that children only need child care for 3 days a week, and that child care for more than 3 days a week may be negative for children and is done only for the mothers who insist on working too long weekly hours (to whom the activity test is applied).   There is increasingly strong evidence[4] that universal child care in Quebec and elsewhere has reduced motherhood penalties substantially.

    5. The Productivity Commission appears to believe that the widespread use of only three days a week of child care is due to maternal preference rather than to the unaffordability of 5 day a week child care.  They show self-reported numbers that allegedly prove that very few mothers would work longer hours each week (and use 5 days of child care) under any circumstances.  In other words, the motherhood penalty in Australia is the result of mothers’ deliberate and free choices.  I doubt it.  In contrast, the ACCC believes that “the price of childcare significantly impacts how much childcare households use.” (p. 22).

     It is true that lower labour force participation and part-time work for mothers are strong norms in Australia, compared to many other countries.  However, there are reasons to believe that if child care was universally affordable and accessible in Australia, those norms would change.  As evidence, look at the very substantial changes in labour force participation of mothers with children 0-4 in Australia over the 12 years from 2009-2021.  In 2009, 48% of mothers with young children stayed outside the labour force.  By 2021, that number had fallen by one-third (16 percentage points!) to 32%.   That would seem to indicate that mothers’ employment decisions may be quite sensitive to changes in policy, rather than fixed by historical norms.  This matters for the motherhood penalty, but it also matters a lot for the funding of child care programs; in Quebec, a large portion of the fiscal costs of child care programs is funded by increased incomes and taxes due to changed employment.

    6. There is no plan for requiring financial accountability of providers for the vast sums of government money they receive.  The legal fiction is that parents who receive subsidies for the purchase of child care are effective watchdogs of how the money is spent.  This is so obviously not true that it needs little argument to reject it.  But, there is no requirement for providers to show that they have spent money wisely to achieve publicly desirable purposes.  There are some serious red flags that the Productivity Commission does not really address.  They report that there are many hours of ECEC services that are paid for each day (by parents and the government) but are not used. This sounds like evidence of substantial inefficiency in current funding and attendance arrangements.  The Australian Competition and Consumer Commission (ACCC) report concludes that for-profit child care providers pay more for occupancy costs than not-for-profit providers (and that part of this may be due to the use of facilities for which ownership is not at arms-length)[5].    Further, for-profit services are found by the ACCC to be of worse average quality[6] than that provided by not-for-profit providers.  The Productivity Commission should be making recommendations about compulsory and regular financial accountability. I believe that, in Australia as in Canada, child care is fundamentally a public service (with about 80% of costs paid by the public purse) but one that is delivered by private operators. Detailed and regular reporting on how public moneys are spent should be an obvious requirement.

    7. The final report of the Productivity Commission should lay out a 10- to 20-year vision for the establishment of universal child care services in Australia.  The recommended National Partnership Agreement would be a part of this plan.  Wrap-around child care for preschools would be a part of this plan.  The expansion of supply-side funding of services with fees controlled would be part of this plan.  The new independent ECEC Commission would monitor and report on progress towards universal access and make ongoing recommendations to move towards it.  The Productivity Commission hints at a long-term vision but is not explicit.  This allows the Productivity Commission to duck a lot of longer-term questions about affordability, commercialization of the system, financial accountability, and generally the evolution towards serving public interests better.

    8. Australia has a long-established demand-side (voucher) funding system for child care.  It allows providers to set their own fees, decide on staff compensation conditional on meeting the award levels set by the Fair Work Commission, choose the children and parents they will serve from those who apply and choose the hours of service to provide.  This is not, in my opinion, the best system going forward; I believe that a system of supply-side-funded services with a guaranteed set fee level (plus fees reduced below the set-fee level or to zero for some families) would be better.  However, changing funding systems is not easy and there is often a lot of push-back from those in the system.  Why not think outside the box? Why not establish an alternative supply-side funding system that would exist in parallel with the existing demand-side funding system with incentives for centres to switch? 

    Centres that were funded on the supply-side would have a fixed fee, and enhanced regulatory requirements.  In exchange, they would have guaranteed funding to cover costs above parent fees. Set-fees that are known and predictable are very popular with parents at all income levels and, in Quebec, have encouraged high child care participation by children in lower-income families.  There would be strong elements of financial accountability and reporting by centres, requirements to pay above-award wages, reduced ability to rely on part-time and casual staff and other requirements related to quality of care, but some centres and some parents would prefer this.  There would be obvious transition difficulties, but this kind of recommendation would boldly look towards transforming Australia’s system into a universal and affordable one.

    9. The Productivity Commission does not address the increasing commercialization of child care services in Australia.  Virtually all of the expansion of centre-based child care services (not preschools) in the last decade – a 50% increase in the number of spaces available – has been in the for-profit sector.  As the ACCC interim report notes: “the child care sector is widely viewed as a safe and strong investment with guaranteed returns, backed by a government safety net.” The Productivity Commission report does not even raise the question of whether this extremely unbalanced growth pattern is desirable. The growth in services that has occurred is disproportionately located where returns are higher, rather than where need is greater, as shown in Figures 3 and 7 of the draft report.  1% of providers now provide 35% of all centre-based child care services. The Productivity Commission should be making recommendations about means of encouraging growth in not-for-profit and public provision of services.  These recommendations would call for planned development and dedicated loan guarantees or other capital funding targeted at not-for-profit providers.  I believe that Australian children and families are unlikely to prefer a universal child care system with unplanned expansion and complete domination of service provision by commercial incentives and ethics.

    10. The Productivity Commission draft report provides a one-sided summary of the experience and effects of Quebec’s universal child care system.  Although it is true that economic researchers found short-run negative effects on some children (effects were found to vary substantially across different child groups[7]), the most recent and comprehensive work on Quebec, using a triple-difference estimator similar to other studies (Montpetit et al., 2024[8]) does not find any long-run negative effects on children’s completed education.  Rather, they find that the long-run education levels of Quebec children who had been eligible for $5 a day child care were no different than their peers in other parts of Canada.  In particular they write: “We find no evidence of negative effects on educational attainment of eligible children in the long-run. This pattern is true for each educational level, namely for university, high school, and college completion….

    The results suggest a positive but statistically insignificant impact on completion of a university degree, the most comparable outcome across provinces, and no impact at lower levels.”(p. 21).  Further, Montpetit’s study calculates the social cost of increased “youth criminal activity” identified by Baker, Gruber and Milligan (2019[9]) and finds negligible social costs because the identified transgressions were minor. 

    11. The Productivity Commission draft report gives little sense that this fixed-parent-fee child care program is an incredibly popular social program with Quebec parents.  The reader will struggle to understand why the Canadian federal government decided in 2021 to spend $30 billion over 5 years to spread the Quebec child care model of a fixed-fee, supply-side-funded program across the country.  The reader of the draft report will not be told that Quebec’s child care reforms had sufficient impacts on mothers’ employment and economic growth to more than pay for the costs of the program according to the influential opinion of prominent Canadian economists (Fortin, Godbout, St. Cerny, 2013[10]).  Lefebvre and Merrigan (2008[11]) find that Quebec’s policy reforms increased labour force participation of mothers with children 0-4 by 7.6 percentage points from 61.4%  before the policy.  They estimate the labour force elasticity to child care price to be 0.25.  In addition the child care reforms increased the annual hours worked, weeks worked and earnings; these elasticities were 0.26, 0.28, and 0.34, respectively.  With these elasticities, a 10% decrease in the fee would increase annual hours worked by 2.6%, increase weeks worked by 2.8% or increase earnings by 3.4% on average.

    Lefebvre, Merrigan and Verstraete (2009[12]) found that the labour force impacts lasted beyond the preschool child care years when mothers no longer had any children 0-5 years of age, and that the positive labour force impacts were particularly strong amongst mothers with lower levels of education. Even if long run labour force effects are ignored, the recent study by Montpetit and colleagues (2024) finds that the overall benefits of universal child care in Quebec are three and a half times the costs.  This includes a careful evaluation of the value of the improvements in the well-being of Quebec mothers from universal child care services.

    12. The Quebec model of funding and management of child care services is not a perfect one.  Two factors made its birth particularly difficult.  First, when they initiated the $5 a day program, Quebec only had enough child care supply to provide services to 15% of the child population 0-4 years.  For 20 years, they scrambled to increase supply and have now reached nearly 70%. However, this scramble to increase supply meant relying too heavily on both family child care and for-profit child care with weaker regulation.  These types of care have been the Achilles heel of quality[13] in the Quebec system, a problem that is now being addressed.  Second, this was a program funded exclusively by the provincial government; at that time, the federal government was unwilling to provide any financial support.  The provincial governments in Canada have modest taxing powers, so services were not as generously funded as they should have been.  With the federal government coming to the table in 2021 with billions of dollars of additional funding, child care services in Quebec will now be funded more appropriately.  I have described the problems of the Quebec model of child care here[14], warts and all.   However, these problems are not inherent in a universal program; Australia already has a large child care supply and substantial financial resources available to support good quality programming. It can gain the substantial benefits of Quebec’s universal program without the birth pangs that Quebec has faced.

    Commentators have noted that low-income families in Quebec do not have as much access to good quality child care as do middle income families.  That is true and is a problem. As far as I can tell, that is true and is a problem in most countries whether child care systems are universal or not; it is certainly true in Australia[15]. However under Quebec’s universal program it is also true that a much higher percentage of low-income families were able to access licensed child care than was the case with the targeted funding that predominated in the rest of Canada[16].  Children from low-income families also were particularly likely to benefit from their access to early childhood programs[17].

    13. The terms of reference of the Productivity Commission enquiry require that it study “the operation and adequacy of the market, including types of care and the roles of for-profit and not-for-profit providers, and the appropriate role for government.” Further, these terms of reference direct that “The Commission should have regard to any findings from the Australian Competition and Consumer Commission’s Price Inquiry into child care prices….”   However, the findings in the ACCC draft report about the child care industry scarcely get any mention, including differences in costs and priorities of for-profit and not-for-profit providers.  The ACCC report provides important insights about costs and performance not available elsewhere.

    14. I hope that many of these issues will be addressed directly in the final report of the Productivity Commission.

    Gordon Cleveland, Ph.D.,
    Associate Professor of Economics Emeritus,
    Department of Management,
    University of Toronto Scarborough

    FOOTNOTES/ENDNOTES

    [1] These policy changes -removing activity requirements for 3 day attendance and 100% subsidy up to $80,000 -should mean many more lower-income families wanting access to child care.  Some operators prefer to serve a more exclusive clientele; this is known as creaming.  Under current rules, centres that charge a fee that is above the maximum hourly-fee limit are likely to effectively exclude most of these children.  Perhaps the Productivity Commission should require that centres be compelled to serve these children at the maximum hourly fee if parents apply to attend.

    [2] The cost of child care in Australia is pretty high.  Centre-based child care fees per hour (averaged across ages 0-5) were $11.72 in 2022.  The Productivity Commission reports that the average daily fee is $124 per day.   From 2018 to 2022, gross fees in Australia increased by 20.6% in comparison to the OECD average of 9.5%.  The OECD ranks Australia as 26th out of 32 countries on affordability of child care for a typical couple family with two children.  This is despite the Australian Government contribution to fees being significantly higher than most other OECD countries – 16% in Australia compared to the OECD average of 7%.

    [3] See https://childcarepolicy.net/cost-controls-and-supply-side-funding-what-does-quebec-do/ for a discussion of details of child care funding in Quebec and see https://childcarepolicy.net/new-zealands-funding-system-for-early-childhood-education-and-care-services/ for a discussion of details of child care funding in New Zealand.

    [4] See Connolly, M., Mélanie-Fontaine, M. & Haeck, C. (2023). Child Penalties in Canada.   Canadian Public Policy doi:10.3138/cpp.2023-015.  See also Karademir, S., J.-W. Laliberté, and S. Staubli. (2023). “The Multigenerational Impact of Children and Childcare Policies.” IZA Discussion Papers No. 15894, Institute of Labor Economics (IZA), Bonn, Germany.  As Karademir et al indicate “The disproportionate impact of children on women’s earnings constitutes the primary factor contributing to persistent gender inequality in many countries.”

    [5] Land and occupancy costs are about 18% of the total of all costs for large for-profit providers compared to about 10% for large not-for-profit providers. This is not due to what the Aussies call “peppercorn rents” (i.e., below-market rents provided on a goodwill basis).  The average profit margin for large centre based day care providers was about 9% for for-profit providers and about 6% for not-for- profit providers in 2022. 

    [6] About 95% of the staff in not-for-profit centres are paid “above-award” compared to 64% in for-profit centres.  Not-for-profit providers are much more likely to hire their staff on a full-time basis, whereas for-profit providers primarily rely on part-time staff.  As the ACCC report suggests: “large not-for-profit centre-based day care providers invest savings from lower land costs into labour costs, to improve the quality of their services and their ability to compete in their relevant markets.”  The ACCC finds that centre-based day care services with a higher proportion of staff paid above award and with lower staff turnover have a higher quality rating under the National Quality Standard. 

    [7] Kottelenberg and Lehrer provide evidence of substantial heterogeneity in the impacts of the Quebec child care reforms by the age of the child, the child’s gender and by initial abilities in a series of studies published in 2013, 2014, 2017 and 2018.  Kottelenberg, M. J. and Lehrer, S. F. (2013). New evidence on the impacts of access to and attending universal child-care in Canada. Canadian Public Policy, 39(2):263–286. Kottelenberg, M. J. and Lehrer, S. F. (2014). Do the perils of universal childcare depend on the child’s age? CESifo Economic Studies, 60(2):338–365. Kottelenberg, M. J. and Lehrer, S. F. (2017). Targeted or universal coverage? assessing heterogeneity in the effects of universal child care. Journal of Labor Economics, 35(3):609–653. Kottelenberg, M. J. and Lehrer, S. F. (2018). Does Quebec’s subsidized child care policy give boys and girls an equal start? Canadian Journal of Economics/Revue canadienne d’ ́economique, 51(2):627–659. Kottelenberg and Lehrer (2017) finds that levels and changes in home learning environments by some parents in response to the Quebec reforms were an important explanatory factor of differential effects on children.

    [8] Montpetit, S., Beauregard, P., & Carrer, L. (2024). A Welfare Analysis of Universal Childcare: Lessons From a Canadian Reformhttps://drive.google.com/file/d/1dDWvj2e08YodXAWd5zdmBKP3j-kxt1Uj/view

    [9] Baker M., Gruber J., & Milligan K. (2019). The Long-Run Impacts of a Universal Child Care Program American Economic Journal. Economic Policy, Vol.11 (3), p.1-26; American Economic Association.

    [10] Fortin, P., Godbout, L. and St.Cerny, S.. (2013). “Impacts of Quebec’s Universal Low-fee Childcare Program on Female Labour Force Participation, Domestic Income and Government Budgets. University of Toronto. Toronto, ON.  Translated from French https://www.oise.utoronto.ca/home/sites/default/files/2024-02/impact-of-quebec-s-universal-low-fee-childcare-program-on-female-labour-force-participation.pdf  Original reference is Fortin, P., Godbout, L., and St-Cerny, S. (2013). L’impact des services de garde a contribution reduite du quebec sur le taux d’activite feminin, le revenu interieur et les budgets gouvernementaux. Revue Interventions economiques. Papers in Political Economy, 47.

    [11] Lefebvre, P., Merrigan, P. (2008). Childcare policy and the labor supply of mothers with young children: a natural experiment from Canada. Journal of Labor Economics 23, 519–548.

    [12] Lefebvre, P., Merrigan, P., Verstraete, M. (2009) Dynamic Labour Supply Effects of Childcare Subsidies: Evidence from a Canadian Natural Experiment on Low-fee Universal Child Care.  Labour Economics 16: 490-502.

    [13] Couillard, K. (2018) Early Childhood: The Quality of Educational Childcare Services in Quebec. Observatoire des tout-petits. Montreal, Quebec, Fondation Lucie et André Chagnon.  Page 25 of this document charts the measured quality differences between CPEs (not-for-profit centres) and the for-profit non-subsidized daycares.  In the CPEs that are the heart of the supply-side funded system, in two age categories, 4% or fewer of centre rooms are of poor quality.  In the for-profit child care centres funded by demand-side tax credits to quickly boost supply, 36%-41% are of poor quality.

    [14] Cleveland, G., Mathieu, S., and Japel, C. (2021) What is “the Quebec Model” of Early Learning and Child Care? Policy Options, Institute for Research on Public Policy, Montreal QC. https://policyoptions.irpp.org/magazines/february-2021/what-is-the-quebec-model-of-early-learning-and-child-care/#:~:text=The%20plan%20in%20Quebec%20was,educational%20child%20care%20after%20that.

    [15] See Cloney, D., Cleveland, G., Hattie, J., and Tayler, C. (2016) Variations in the Availability and Quality of Early Childhood Education and Care by Socioeconomic Status of Neighborhoods Early Education and Development Vol. 27(3 ):384 – 401, and also see : Australian Children’s Education and Care Quality Authority (ACECQA) (2020) Quality ratings by socio-economic status of areas, ACECQA, Sydney

    [16] Cleveland, G. (2017) “What is the Role of Early Childhood Education and Care in an Equality Agenda?” pp. 75-98 in Robert J. Brym ed. Income Inequality and the Future of Canadian Society ISBN-13:978-1-77244-044-7 Oakville, ON: Rock’s Mills Press. Proceedings of the inaugural S.D.Clark memorial symposium.

    [17] Kottelenberg and Lehrer (2017) op. cit.

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    An Open Letter to Kevin Rudd…from a Canadian economist who cares about Australian child care

    This is a letter I wrote in 2008 (yes, 15 years ago) to the Prime Minister of Australia, Kevin Rudd. He had recently promised to expand demand-side funding in Australia by extending the Child Care Tax Rebate to cover 50% of parents’ child care spending, up from 30%. I argue in this letter that this will do little in the long run to improve child care affordability, but that it will put a lot of money into the pockets of for-profit child care operators. Unfortunately, I think I have been proven right. I propose that Australia should treat child care as a public service funded with operational funding with strong measures of financial accountability for public dollars. I would make the same proposals today as Australia’s Productivity Commission studies how to make child care provision universal.


    Dear Prime Minister Rudd,

    The spectacular “collapse” of Eddy Groves’ debt-fuelled ABC Learning empire in the last week leads me to offer you some thoughts on future child care policy in Australia, which has become my second home in increasingly lengthy visits over the last few years.  Under the Howard government, Australia has become the leading example of a country that delivers child care services according to the late Milton Friedman’s dictum on public services: deliver them through private providers funded by vouchers that maximize consumer choice. 

    The theory is that private providers would compete against each other for consumers, ensuring low costs and high quality that parents would purchase with their vouchers plus a parent contribution.  The private market would deliver public services much more efficiently than a bloated, inefficient, public sector could. In theory, the Child Care Benefit (geared to parents’ incomes) combined with the Child Care Tax Rebate provide the “voucher” for parents to be spent on approved child care services.  In theory, competition between providers, along with a nudge from the National Childcare Accreditation Council, ensures good quality child care services at affordable prices.  However, as the great baseball philosopher Yogi Berra once famously observed “In theory, there’s no difference between theory and practice.  In practice, there is.”

    Competition is not a good mechanism for developing quality in child care.  The kind of quality that optimally promotes child development is very difficult for parents to observe.  It’s based on the nature of the interactions, over time, between teachers/caregivers and children.  Most parents don’t have hours and days to sit in their child’s child care centre and judge the nature and quality of interactions.  And, in any case, the interactions would change because the parent was there.  So parents can’t play their gatekeeper role in the child care market of punishing low quality producers and rewarding high quality ones.

    In this case, the profit motive, normally loved by economists, becomes pernicious.  Corporate child care providers, anxious to serve their shareholders’ interests, do best by claiming to produce high quality services, but failing to hire the expensive trained staff necessary to actually provide them.

    I do love Australia, but I believe that the Australian model of child care funding and regulation needs rethinking.  Although Milton Friedman’s model of private delivery of public services works not too badly for some public services, it doesn’t work well for child care.  The evidence lies in front of you.  Instead of competitive private provision, you have a single corporation completely dominating the market.  Instead of competitive pressures to keep prices low, you have prices leaping up each time the government tries to increase funding to make services more affordable.  Instead of high quality child care services, you have the Australian Council of Social Services identifying the “variable quality of early childhood care and education” as a major concern. Instead of good quality child care services delivered by knowledgeable staff trained in early childhood education, you have an expensive child care system in which, nonetheless, about 40% of staff are “unqualified” – have no early childhood education diploma or equivalent (National Children’s Services Workforce Study, 2006) and your legislated standards for staff:child ratios are low by international standards.

    Instead of a free flow of public information about the quality of services, helping parents to make choices and forcing providers to compete to raise quality, you have the Accreditation Council guarding quality information to protect commercial confidentiality, you have an accreditation process that pretends to guarantee high quality but only actually slaps the hands of the worst offenders.  In fact, instead of inviting the cleansing winds of free competition into the production of a high quality public service, the Friedman model of funding has produced the inefficiency and greed of managed and protected private monopoly.

    I realize that you have promised to expand the Child Care Tax Rebate from 30% to 50% in order to improve affordability for parents.  I think you should delay and rethink this change (while putting priority on the companion promise of 15 hours of free preschool).  You know full well what an expanded CCTR will do. Immediately, it will increase the value of Eddy Groves’ assets and that of other private producers.  Next, it will lead to an increase in the price of child care.  Several years down the road, child care will be no more affordable than it is today.

    Good quality early learning and child care services have important public benefits, both by reducing the barriers to employment for those mothers that are anxious to enter the labour force, and by stimulating the play-based development of children while their parents are working or studying.  Government can contribute to the achievement of these twin public objectives only if it can find a way of facilitating the provision of high quality care at affordable prices for parents, with special attention to affordability for low-income families.  I would argue that Australia is not scoring particularly well on any of these objectives: not on quality, not on affordability, and not on affordability for low-income parents.  You do have some fine examples of good programs scattered around Australia, and many good individuals working hard to provide better services, but these are only at the margins of the system, rather than at its centre.   It appears that the system of delivery of this important public service is broken, and needs more than a quick-fix solution.

    In what direction do solutions lie?  I think you should acknowledge that early learning and child care is, fundamentally, a public service rather than a private market commodity.  Public and community-based not-for-profit providers will have fewer incentive-conflicts in pursuing the public objectives of good quality, and the integrated delivery of care and education.  Many parents recognize this, as the ballooning waiting lists of many community-based centres attest. Governments should find ways of strengthening this sector’s ability to act as a leader and a standard in the provision of community-oriented high-quality integrated child care and family services. 

    If the private for-profit sector is going to continue to be an important part of the Australian delivery system, it will need to have strong incentives to serve public interests better.  This means using the money promised for expansion of the Child Care Tax Rebate to, instead, develop effective, conditional, supply-side funding for long day care facilities.  The OECD’s 2006 report on child care policy in member countries (with a prominent Australian co-author) advised that “direct public funding of services brings…more effective control, advantages of scale, better national quality, more effective training for educators and a higher degree of equity in access and participation than consumer subsidy models.”  This subsidy money would be provided to services conditional on their openness and transparency, and on observed meeting of quality standards and measures.

    Finally, and importantly, based on my Canadian experience, I would advise serious consideration (in the 2020 review and elsewhere) of publicly-provided maternity and parental leave and benefits.  In Canada, nearly every currently-employed new mother is eligible for 15 weeks paid leave, and, on top of this, employed mothers and fathers can share another 35 weeks of paid leave in the year after the child’s birth.  The leave and benefits are enormously popular, and provide a superb opportunity for (both) working parents to bond with their new-born children.  The benefits are financed by employer-employee contributions; because only a small fraction of the employed population is on leave at any time, the necessary contributions are small.  For many families, maternity and parental leaves make it possible to reduce the conflict between employment and raising a family, making continuous labour force attachment possible.  Maternity and parental leave also make the use of child care before the age of one unnecessary for most families.  This is the age at which child care, when it is done well, is startlingly expensive; when it is not done well, this is when child care can have important negative effects on children.

    I urge you to take the opportunities you have created in your new government to redirect early learning and child care policy in new directions.

    A shortened version of this letter will be sent for possible publication in an Australian newspaper. 

    I would be happy to clarify, or defend, any of the propositions I have advanced here, in further correspondence. 

    Yours very truly,

    Dr. Gordon Cleveland,
    Economist and Associate Chair,
    Department of Management,
    University of Toronto Scarborough