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

In order to access the child care money announced in the 2021 Federal Budget, Ontario has to devise a credible, implementable 5-year plan to make licensed child care affordable, accessible and of high-quality.  It’s a lot of money.  I estimate that Ontario could receive about $1.16 Billion of new federal child care money in 2021-22.  And more money on top for Indigenous child care.  That would mean an increase of 50% in the amount of spending by the Ontario Government on early years and child care (which is now about $2.3 Billion).

The federal child care money for Ontario would rise to $1.74 Billion, $2.12 Billion and $2.51 Billion over the next three fiscal years.  In 2025-26 and thereafter, Ontario should be receiving $2.97 Billion per year. 

I believe the fundamental objective of the federal government is the creation in each province and territory of a system of community-based child care services that is affordable for parents, serves a wide range of child and parent needs, is accessible to families, inclusive of children with additional needs, and is of high-quality (i.e., with a high proportion of trained early childhood educators, with substantial continuing professional development). Community-based services are predominantly not-for-profit or public services such that the needs of communities, parents and children are the basis of all decisions rather than the commercial interests of the owners and shareholders of child care businesses.  This is the direction mandated by the eight provincial and territorial agreements signed so far.

If Ontario comes up with a 5-year plan consistent with these objectives, the federal government will sign on the dotted line and we will get the child care funding.  And this funding is permanent.

Good news? Yes.  But Doug Ford is apparently unwilling to come up with an Ontario Action Plan that meets the federal requirements. 

Of course, it won’t be easy.  Ontario has the most expensive child care in the country.  Real estate is more expensive here, labour is more expensive here, and child-staff ratios and regulations are better here than in some other provinces.  Chrystia Freeland has called for a cut of 50% in parent fees by the end of 2022, but I don’t think the Ontario plan can be as simple as that.   It would cost over $1 Billion just to reduce fees by 50% on existing Ontario spaces, without dealing with expansion or raising wages.  We need a plan that simultaneously builds capacity, lowers fees, improves equity in access to services, increases compensation of ECEs and avoids long waiting lists for not-yet-existing services.  

The trick is to design policies so that the transition towards affordable child care is equitable and well-managed.  We need to work together on the five-year plan.  The City of Toronto has already proposed that municipalities should be at the Ontario table because they will have major responsibility for delivering and managing the expansion of services.  This is a good idea.

What principles and policies should be in Ontario’s 5-year child care plan?

1. Low-, middle- and high-income families should all benefit from the reduction in child care fees.  This may imply adoption of a sliding scale of parent fees along with gradual reduction of fixed maximum fees for child care.
2. Rapid capacity expansion of not-for-profit and public services should be a top priority.  Municipalities and school boards will be key to planning and implementation. 
3. There must be a 5-year and a 10-year plan for capital expansion and for the expansion of home child care.  New capacity developments should be planned to produce an equitable geographic and income distribution of services.  New capacity should take account of services for children needing additional supports, for families needing non-standard hours care, for special rural needs, and other needs for diverse services. There needs to be money for planning, development and capital. 
4. Fee reductions should be phased-in so that demand for services expands at about the same rate as capacity grows.
5. All existing for-profit, not-for-profit and public services should be invited to provide lower-fee services for Ontario families.  These fee reductions will be funded by substantially increased operating grants.  In return for this substantial public funding, services will need to accept that they are providing what is essentially a public service with required financial transparency, controlled fees, increased compensation moving towards wage standards, enhanced reporting requirements, quality-improvement initiatives, increased professional development, and so on.  Services that do not wish to accept these conditions can continue to operate with existing supports and regulations (e.g., current rather than increased levels of operating grants). 
6. Increased operating grants for these publicly-managed services should support increased compensation of ECEs as well as lower fees for parents. 
7. Research and widespread consultations should be conducted to lead towards agreement on the future structure and level of wages necessary to ensure continuing recruitment of adequate numbers of trained ECEs and to incentivize making early childhood education a viable career choice. A province-wide compensation grid with variations by region and by qualifications should be negotiated and operators should be expected to meet or exceed these levels.
8. The Ontario government should sponsor collaborative research, in which municipalities will be involved, on the costs, quality, fees and demand for licensed child care.  An important output of this research will be the identification of key factors affecting child care costs (and/or quality) that should be legitimately subsidized through operating funding.

These ideas are intended to begin an important conversation about the best growth strategy for licensed, community-based, publicly-managed child care services in Ontario.  Federal initiatives have opened up immense possibilities; we need to determine the best path forward and pressure the provincial government to take it.

I participated recently in the webinar at which you spoke, sponsored by the Toronto Star, First Policy Response, the Lawson Foundation and others.  The topic was “Delivering on the Commitment: A Canada-Wide Childcare Plan”.   

I often disagree with your policy positions in relation to child care, but I think it is important in any debate that we can agree on facts before opinion takes over.  So, if you will permit me, let me correct a couple of things that you said at that webinar. 

First, the Government of Ontario did not get rid of the Child Care Expense Deduction in Ontario.  It still exists.  They layered the child care expenses tax credit (sometimes called CARE) on top of the Child Care Expense Deduction.  These measures have the same base and the same limits, to make it easy for families, but they are distinct. I explain below that these measures actually have different purposes.

Second, the federal government’s new child care financing proposals announced in the 2021 Budget are not 50/50.  The term 50/50 was used once in the budget documents to suggest that by 2025-26 the federal government’s financial contribution to early learning and child care would have risen to equal the current expenditures of provinces and territories (including kindergarten expenditures in the provincial-territorial total).  However, there is no requirement for 50/50 cost-sharing of any of the $30 Billion over 5 years or $8.3 Billion going forward from 2025-26 onwards.  The design is, of course, deliberate.  The federal government wants to make it difficult for provinces to refuse to sign bilateral agreements and realizes that child care is in provincial jurisdiction.  So, it is offering money if provinces are willing to agree to commit to the affordability goals it has stated.  I will not be surprised if the federal government encourages provinces to also make investments when it is in bilateral discussions.  That would make things easier.  But there is no requirement for provincial/territorial contributions beyond maintaining their current levels of expenditure. 

Third, you treat the Child Care Expense Deduction as if it were designed to help families with child care costs.  If it was intended as financial support for child care costs, I would agree with you that it is very poorly designed – bigger tax breaks for the rich than the poor, based on the income of the lower earner, any type of paid child care is eligible, etc etc.  

But the Child Care Expense Deduction is a measure to create horizontal equity in the tax system; it is a tax measure, not a measure to reduce child care costs.  The Child Care Expense Deduction looks superficially similar to a refundable tax credit for child care expenses, but it is fundamentally different and should be treated differently.  Ever since 1972, the Child Care Expense Deduction has been a way of defining what income should be taxable and what income should not.  The Child Care Expense Deduction was a response to the analysis in the 1970 Royal Commission on the Status of Women which wrote: “… expenses for the care of children or other dependants are denied to a working mother as a legitimate deduction from her gross salary or wages. Under the present system, the wife who works outside and has one or more dependants who require care pays a tax on earnings out of which she has to pay for child-care. Since the couple must pay for child-care services out of net income, after payment of income tax, a working mother has to earn a substantial salary if her working outside is to be financially more profitable than the value of her services in the home.” (p. 292).   Two years after this report the Government of Canada established the Child Care Expense Deduction. The Child Care Expense Deduction affects the after-tax income of the family – it is an element of fair taxation of working parents.  And getting rid of it would mean potentially punitive taxation of mothers entering the work force. 

Do this thought experiment.  If child care for your young child costs $8,000 a year and you (as the lower earner in your family) are in a tax bracket with a marginal tax rate of 25%, how much are your child care costs?  You are going to say $6,000 a year ($8,000 – (.25 x $8,000)).  But the correct answer is $8,000.  All the Child Care Expense Deduction does is ensure that you pay your child care expenses (up to $8,000 per young child) in pre-tax dollars rather than after-tax dollars.  If you had to pay these child care expenses in after-tax dollars, you would have to earn about $10,667 dollars, pay 25% of this in income taxes, in order to have $8,000 to pay child care expenses.  The CCED treats child care (any kind of paid child care) as a necessary work expense, which is therefore deductible from income before levying tax rates on the income. 

Cheers,
Gordon

Andrew Coyne knows very little about child care, but feels free to pontificate about it.  It’s a shame, because some people still listen to him and believe he has done his homework.  He hasn’t.  And so, he concludes that the federal government should help parents, especially low-income ones, by giving them a direct subsidy – money.  There are more than a few problems with his opinion piece in the Globe and Mail. 

Apparently, Andrew doesn’t realize that we already have a direct payment to parents, similar to the one he is calling for and geared to income, called the Canada Child Benefit.   If your family earns less than about $32,000 annually, you will receive $563.75 per month for each of your children under six years and $475.66 for each child 6-17 years of age.  The Canada Child Benefit is a partial solution to poverty, but it is not a child care policy.

Of course, the funding announced in the recent federal budget is designed for a different purpose – to dramatically improve the affordability and accessibility of early learning and child care services.  The plan is explicitly feminist; it is designed to remove barriers to the full participation of mothers in the economy and society.  That’s why it is designed to follow Quebec’s CPE example of low-fee licensed child care.  Andrew Coyne apparently doesn’t get this; he apparently doesn’t see gender as a relevant policy issue. 

Andrew Coyne applies a very old-fashioned economist lens to his thinking about child care. Those economists rely on what they learned in the first-year course, that it is always better to give someone money rather giving them a service.  But, giving money directly to families (as with Stephen Harper’s Universal Child Care Benefit), will tend to discourage mothers’ employment and reinforce current gender roles in families and in the workplace.  So, handing out money is not a good place to start.

On top of this, Andrew doesn’t know much about Quebec’s child care situation (or else he is simply cherry-picking his facts to fit his preconceptions). 

Andrew Coyne says that only 1/3^rd of Quebec’s child care is subsidized.  

I encourage him to check the website of the Quebec Ministry of the Family; it has a lot of data available to correct his misperceptions.   In December 2019, nearly 80% of the child care spots for children 0-4 years of age were directly subsidized, at $8.35 per day (some in CPEs, some in family child care, some in subsidized for-profit child care).  About 55,000 children were in “unsubsidized” child care, but even here a provincial child care expenses tax credit covers a substantial portion of a family’s child care costs. 

Andrew Coyne says that Quebec’s child care system is far from universal.
Nearly 75% of Quebec’s children who are between one and four years of age are in early learning and child care services substantially paid for by the Quebec government, over 80% for 4-year-olds.  Andrew Coyne likes to say that Quebec’s child care system is not universal; this evidence suggests it is very close to universal. 

Andrew Coyne says there are huge waiting lists for child care
As economist Pierre Fortin reckons there is no longer a problem of excess demand for child care spots in Quebec.  There is no “shortage of spaces in aggregate”.  In fact, there are empty child care spaces amongst the for-profit full-fee child care centres whose parents will receive a tax credit.  Where there is excess demand is for spaces in the relatively high-quality CPE network.  So, there is a problem, but not the problem that Andrew Coyne identifies.  Parents are on long waiting lists for non-profit CPE spaces, because the quality there is so much better than in the wild-west for-profit centres that have been more recently established.  The federal government has learned the right lessons from this and will strongly favour funding going only to non-profit enterprises and family homes.

Andrew Coyne says that Quebec’s child care funding “disproportionately benefits the well-to-do”.
Coyne is not wrong here, but neither is he fair in his judgement.  We can compare the situation of low-income children in Quebec to those from high-income families – the bottom 20% to the top 20% of children.  When we do that, using Statistics Canada data from 2019, we find that 68% of children from low-income families in Quebec use licensed child care compared to nearly 78% of children from the highest-income quintile in Quebec.  I agree, this disproportionately benefits the well-to-do and we should structure the new bilateral agreements with provinces and territories to bend the stick the other way.  It’s important.

However, Andrew Coyne is cherry-picking here.  What he doesn’t examine is this same problem of “disproportionate benefit” in other provinces.  Take Ontario.  Despite the existence of child care subsidies targeted at low-income families, only 27% of children from the low-income quintile are using licensed child care.  But just about 50% of children in the top-income quintile use licensed child care.  So, this problem of disproportionate benefit for the well-to-do is bigger outside Quebec than in it.  “Universal” child care contributes to solving the problem of disproportionate benefit rather than making it worse.

Andrew Coyne says that Quebec child care appears to have negative effects on children and families
I agree with Andrew that the impact of child care on children’s development is an important one, but his assessment is not balanced.  Professor Pierre Fortin reads the literature differently.  As he says, “all published studies in the fields of psychology, psychiatry and medicine have given high marks to the CPE network, which is attended by 35 per cent of children in care. Their unanimous finding is that CPEs deliver positive cognitive, health and behavioural results on average, and are effective in reducing the vulnerability of children of all income classes.”  According to Fortin, the big problem is quality in the for-profit child care centres, and to some extent in family child care services.  This is where the negative effects are concentrated. 

The new bilateral agreements should therefore work on fostering high-quality child care in not-for-profit centres, or in publicly-operated facilities.

Andrew has his knickers in a twist about the money Quebec will receive from the federal government.  He is busy developing a conspiracy theory that the only reason that the federal government likes the Quebec CPE model of child care is so that it can funnel free money to Quebec!  This ridiculous claim is beneath him.  Andrew should talk to any person knowledgeable about child care policy before making this outlandish claim.  Admittedly, this federal funding will be beneficial for Quebec, and will, no doubt, help them improve quality in their existing child care system.  But anyone will tell you that the Quebec model, although it is not perfect, has many fans amongst those who know a lot about child care.

Gordon Cleveland
May 2^nd, 2021

I believe we need a child care system across Canada that is as dependable, beneficial for children and accessible as the public school system and nearly as affordable.  I think that is what the Finance Minister promised in the Fall Economic Statement when she said that “Quebec can show us the way on child care.”

Ken Boessenkool and Jennifer Robson offer a different perspective on how to build a child care system in a C.D. Howe Commentary entitled “Aggressive Incrementalism: Strengthening the Foundations of Canada’s Approach to Childcare”. They argue for an incremental approach – “building on what exists”.   This contrasts with what they call the “big bang approach” of universal childcare services at low or no cost to parents, fuelled by substantial federal financial contributions and leadership. 

What they offer is a strange mixture of refundable tax credits, increased operating and capital grants to licensed providers, and a permanent federal transfer of funds to the provinces and territories.   They don’t like principles-based child care funding agreements with provinces, but they, perplexingly, want this new permanent federal funding to be conditional on provincial efforts to expand licensed child care.

Unfortunately, in my opinion, this is a poorly thought-out, poorly informed set of recommendations for addressing the current child care crisis that families face. 

First of all, their proposals do not really build on what exists.  They want to dramatically transform the Child Care Expense Deduction into a refundable tax credit, which breaks with what has existed since the early 1970s.  And they want to break with bilateral agreements, which was the federal funding approach under Paul Martin and now under the Trudeau government.  

A “big bang” approach would, instead, keep the bilateral approach for funneling child care assistance to provinces and territories.  Those agreements would probably direct increased funds towards operating and wage enhancement grants that already exist (perhaps with new conditions).  And quite possibly, the existing Child Care Expense Deduction would be maintained.  So, Boessenkool and Robson’s proposals break from existing funding arrangements more than building on what exists, and possibly more than the “big bang” approach would do.

The biggest problem with the Boessenkool and Robson piece is that they scarcely seem to recognize the centrality of the affordability problem.  As they write, “Our focus here is … on incremental and structural reforms to increase the quantity and quality of childcare in Canada.” (p. 3).  They emphasize over and over the need for more spaces, but affordability gets a very light touch.  The problem is that without very dramatic moves to improve child care affordability, the majority of new spaces will stay empty.  Affordability and availability of child care are not separate problems; they have to be solved together. 

Boessenkool and Robson’s main instrument to improve affordability is a refundable tax credit for child care expenses.  This would replace the existing Child Care Expense Deduction.  They believe the Child Care Expense Deduction is regressive and patriarchal and should be replaced with this tax credit.  The truth is that they do not understand the Child Care Expense Deduction (CCED) at all.  It is not a child care funding mechanism; never was, never will be.  The CCED is part of the definition of income in the tax system.  For our tax system to be fair (horizontally equitable), we allow the lower earner in the family to deduct his or her (but mostly her) necessary costs of employment from the income she earns, before we apply tax rates to determine how much tax she should pay.  If we don’t do this, this lower earner in the family will face punitive tax treatment when she seeks employment.  Getting rid of the Child Care Expense Deduction would do more to reinforce the patriarchy than to smash it.

Boessenkool and Robson think that the tax credit will solve the affordability problem.  How much money will the refundable tax credit give you?   Well, to judge from Doug Ford’s child care tax credit in Ontario, it won’t give you much. 

Conservative politicians selling tax credits in the 2018 Ontario election announced that tax credits would cover up to 75% of a family’s child care costs.   In the cold light of day after the election, the Financial Accountability Office of Ontario (FAO) studied what the likely impact of the tax credit would be in Ontario.  The FAO estimated that only 300 families across Ontario, or one-tenth of one percent of all families claiming the tax credit, would be eligible for the maximum benefit – the 75% assistance promised.  And, although there was much talk during the election of $6,000 or $7,000 of financial assistance to Ontario families, the FAO estimated that the average family receiving a tax credit would get $1,300 worth of help.  So much for the wonder of tax credits to deal with the child care affordability problem, let alone issues of accessibility, quality, special needs, etc.   Of course, Quebec has experienced the other negative effects of using tax credits: dramatic expansion of for-profit child care of considerably lower average quality.

If you do the math, you will find that most Canadian families would be only a few hundred dollars per year better off with this tax credit, and many mothers would face higher tax rates.  What Boessenkool and Robson don’t get is that it will take a “big bang” to dramatically improve child care affordability.  And improving child care affordability is the key to solving the child care crisis that families face.

I am pleased that Boessenkool and Robson recognize the importance of providing direct operating grants and capital grants to child care providers.  However, they don’t seem to realize that operating grants are already a major funding mechanism in provinces and territories.  And, they seem to believe that, having solved the affordability problem with their tax credit, the purpose of these more generous grants to providers is to expand the number of child care spaces.  In fact, operating grants have two primary effects: first, to lower parent fees, and second, to increase staff compensation.  And therefore, these grants primarily impact affordability and quality of services.  The grants do not directly fund the expansion of spaces, although increased affordability means that the economics of space expansion will work out better.

Having misunderstood the purpose of these operating grants, Boessenkool and Robson then develop odd suggestions for the distribution of these grants – they should be based on the birthrate in a neighbourhood, or based on the existence of child care deserts, or they should be allocated by parents to their favoured child care provider.   Some of Boessenkool and Robson’s suggestions could be interpreted as a belief that there should be more planning in the child care system – that facilities should be grown most in the neighbourhoods that need them most.  Others, like the suggestion that these grants should take the form of a child care voucher, head in the opposite direction.  It is a confusing mish-mash.

Boessenkool and Robson suggest that the federal government should transfer child care funding to the provinces and territories in the form of a permanent block grant rather than through bilateral agreements with conditions for the expenditure of funds.  This seems unrealistic and undesirable at this stage.  It is unrealistic because solving affordability, accessibility and quality issues in child care will take Billions of dollars of annual funding.  The federal government will need reasonable assurance that this money is being spent to deliver affordability, accessibility and quality, rather than, for instance, to enrich private corporate interests in different jurisdictions.  Once a good and effective child care system is established across different jurisdictions, block grants could be a viable funding mechanism.

To state it succinctly, I think the primary federal government objective is that there comes to be, in each jurisdiction, a planned, coherent and diverse system of community-based high-quality early learning and child care services that are affordable and accessible to families.  The federal government needs to be respectful of provincial/territorial jurisdiction (which has important benefits).  But the federal government also needs to ensure that funding goes towards achieving this multi-faceted objective.

Gordon Cleveland

March 31, 2021

Great News for Supporters of a National Child Care System

Cardus must really be kicking themselves.  Cardus is a Christian research and advocacy organization that spent a lot of money on that recent Angus Reid poll on attitudes to a national child care program.  I’m sure they expected to hear a lot of support for their view that governments should just give money to parents with children.  Cardus opposes building a child care system that is universally available to families.  And they believe that Canadian families support their point of view.

Imagine their surprise then when Angus Reid found that support for major new investments in child care and for a national child care system is overwhelming amongst families with young children.  The survey found that 84% of families with a child under 6 agreed with the statement that “we need a much bigger public investment in affordable quality child care options.”   That included over 80% of families with a parent at home, as well as those currently using child care.

Of families with a child under 6, a total of 83% of families with a child under 6 supported “the idea of moving towards a national child care system in Canada”.  Only 16% of these families moderately or strongly opposed this statement.

• 88% of all these families agreed that “finding quality child care is a way bigger hassle than in should be for parents today”
• 82% agreed that “child care workers are underpaid for the important work they do”
• 96% agreed that “mothers have every right to work hard and pursue a fulfilling career”.

Of course, families with a child under 6 are split on the best financing and delivery mechanisms for a new national child care system.  In this survey, 85% supported “publicly subsidiz[ing] eligible child care centres and regulated home day cares as in Quebec where parents pay roughly $10 per child per day and the government funds the rest of the costs.”

But 85% also supported the “creat[ion] of a refundable federal tax credit that allows lower income families to claim as much as 75% of their child care expenses.”

And 84% supported “increase[ing] the Canada Child Benefit payment up to an additional $125 a month per child.  And 84% supported “creat[ing] a guaranteed paid family leave program that provides income during the first year of a child’s life for those who don’t qualify for parental leave under Employment Insurance.”

But only 64% supported “creat[ing] a $300 a month per child subsidy for non-parental, in-home care (such as a nanny or paid relative).

These families with a child younger than six years were also asked “of the various proposed child care policies we just looked at…which…would you choose as the top priorities to proceed with?”   The largest proportion by far (52%) answered “subsidized child care facilities where parents pay $10 a day.”   A tax credit for child care expenses was chosen by 23%.  An increase in the Canada Child Benefit was chosen by 39%.  Paid family leave outside EI was chosen by 22%.  (Obviously families were allowed to choose more than one top priority, because these numbers add up to more than 100%).

It is probably worth noting that the Canada Child Benefit has already recently been increased.  This means that for the 2020–21 benefit year, the maximum benefit will be $6,765 per child under age 6 and $5,708 per child age 6 through 17.  The Canada Child Benefit is of particular benefit to families in which a parent is at home and to lone parent families, because incomes in these families tend to be lower.

The Liberal party promised at the last election to look closely at maternity/parental benefits for families not currently eligible for benefits through EI.  This remains to be done.

The overall conclusion from the Angus Reid/Cardus poll seems to be that there is very substantial public support by parents for major investments in child care, and particularly for    direct subsidization of child care facilities to make child care widely accessible and affordable.

Cardus must have gotten some joy out of the answer to one of their more speculative questions – if you could afford to, would you rather stay home full-time with your children until they go to grade school?  Two-thirds of respondents said yes to this highly hypothetical question. 

Of course, nearly all families COULD NOT actually afford to have a parent stay at home full-time.  And society couldn’t afford it either.  When society makes low-fee child care available for families, this supports activities that increase employment, production, incomes, tax revenues and well-being of many people in society.  That’s not what would happen if society gave parents with children enough money to allow them to stay at home for years while their children grow up. 

However, nearly all the reponses to this very extensive survey should make Cardus change its tune on child care.  Consider these results from the part of the survey that went to a general sample of the Canadian population (not exclusively to families with young children).

• 72% of all Canadians, and a majority in EVERY PROVINCE (including 59% in Alberta) favour moving towards a national child care system
• 89% of women 18-34 years of age support moving towards a national child care system (and over 60% of women and men in every age category also support this).
• 90% of Canadians who voted NDP in the last election support moving towards a national child care system
• 85% of Canadians who voted for the Liberals in the last election support moving towards a national child care system
• Amazingly, even 49% of Canadians who voted for the Conservative Party in the last election support moving towards a national child care system

Not good news for Cardus, but good news for the rest of us.  The large majority of Canadians, and overwhelming numbers of families with young children are on board with moving towards a national child care system with a very substantial federal investment of dollars.  And there is very strong support for direct funding of child care services to provide affordable and accessible child care for $10 a day.