There is a conservative case for a daycare subsidy
Paying to care for other people's kids could save you money in the long run
Although it’s manna for Canadian “progressives” to demand $10 a day childcare for everyone, there is also a conservative case to be made for taxpayer-subsidized childcare. Pity there are no conservatives (or, frankly, liberals) making it.
The Ontario Liberal Party leader (yes, Virginia, there is still an Ontario Liberal Party – I hear it meets weekly in Steven Del Duca’s basement where they can easily maintain a 2-meter safe distance between caucus members while admiring his outdoor swimming pool) is demanding Ontario’s Fall Economic Statement “must included $10/day childcare.”
Which, of course, prompts me to ask: Why $10?
Why not $9.75 per day? Or, $10.50? What’s so magic about an even tenner per rugrat per day? The answer, also of course, is: politics.
Ten dollar day care is not an economic strategy – it’s a political strategy. It’s easy to say. It’s easy to remember. It’s easy to talk about with your friends without stumbling over any, you know, details.
Liberals have called for $10/day universal child care because it’s easy to call for. Much harder to deliver. After all, the actual cost of care for a child in a licensed and regulated daycare setting vastly exceeds $10/day. And, God knows the Liberals have no plans to pay daycare owners and workers less money than they receive now.
Federal Liberals have called for a “national childcare strategy” since Christ was a carpenter. It’s the gift that keeps on giving. A promise easily made, easily renewed, always just out of reach – unless you re-elect them one more time. It’s never been about caring for children or growing Canada’s economy – it’s always been about getting votes. And it works.
But, that’s not to say it couldn’t work. Kinda. Sorta.
There are a lot of problems with Ontario’s current daycare system. It’s over-regulated and under-commonsensed and few daycare operators have more than a smidge of business sense. But, that’s a column for another day.
Today, I’m going to make the case – a conservative case – for subsidizing the cost of childcare. As I said off the top, there is one. And, here it is…
If subsidized childcare enables a parent to work (or upgrade their skills) and pay more income taxes it may make economic sense for the government collecting the tax.
i.e. if the Future Value of the increase in lifetime taxes paid exceeds the Future Value of the short-term subsidy.
In Canada, the federal and provincial governments make their nut by collecting taxes on our incomes. Generally speaking, people pay more income tax as their incomes increase. So, it stands to reason, if you’re going to make more money – or learn how to make more money – while somebody else is looking after your kids, that may be a good fiscal deal for the government.
Higher incomes tend to last longer than childcare expenses.
Most parents in Ontario may need full-time daycare from the time their parental leave benefits end (between 55–69 weeks post-birth when the child is up to 16 months old) and full-day Junior Kindergarten begins at age 4 years. That’s 32 months of full-time childcare.
Of course, most parents who are working full-time jobs will need part-time childcare even while their offspring is in junior school.
The higher income – and therefore higher income taxes paid – that could potentially be unlocked by subsidized childcare, though, could go on for decades.
It’s quite easy to imagine cases where subsidizing daycare for a few years in exchange for much higher income taxes paid over decades results in a positive economic benefit for governments – and therefore taxpayers.
Both provincial and federal governments would reap this incremental income tax benefit so it makes sense for them to proportionately share the cost of the subsidy.
Municipalities receive no income taxes from residents, so there is no economic advantage for them to be involved in any significant way in subsidizing any form of childcare. Despite this, Canadian cities such as Toronto regular spend hundreds of millions doing exactly that: subsidizing the price of daycare with zero return on the expense.
There is also a clear and tangible value that could be assigned (by someone much smarter than me) to potential future reductions in healthcare costs for parents/kids living at a higher standard. There are decades of validated research that demonstrate higher incomes and the higher standards of living they enable significantly improve health outcomes. And, the opposite is equally true.
One infamous McMaster University study found Hamilton residents living in that city’s richest neighbourhoods lived as much as 21 years longer than those living in the city’s poorest boroughs. Poor people die earlier and cost the healthcare system more than rich people. If subsidized childcare allows families to improve their economic fortunes, live healthier and cost tomorrow’s taxpayers less in healthcare costs, that’s a financial boon for all of us.
No doubt, there are also many less tangible benefits arising from the improved self-esteem and mental health that comes with self-improvement, earning more money and living more comfortably. Along with paying higher income taxes, parents who use their time freed from childcare duties to improve their education may also learn something that could benefit us all. Perhaps, a future Nobel prize winner or virus buster may be revealed. Who knows?
But, universal childcare subsidies are harder to justify.
As compelling as my Future Value argument is, it simply doesn’t hold on a universal basis. If everyone is eligible for the same childcare subsidy, a significant number of people will get it who don’t need it. If they can already afford daycare, it’s unlikely they’ll earn more because their childcare costs are subsidized. So, they won’t pay more income tax as a result and taxpayers won’t reap any reward from the subsidy. Means-testing the subsidy may mitigate this risk.
Other parents may not choose to use their “kid-free time” to work more or upgrade their skills so they can earn more. There will be no Future Value windfall from these families. Requiring full-time employment, efforts to secure full-time employment, or recognized educational studies that will foreseeably improve employability or increase earning potential, as a condition of subsidy may be a reasonable way to mitigate this risk.
The universal childcare subsidy approach also may not work for multi-child families where it is often cheaper to hire a nanny to come into the home and care for children, than it is to place the kids in a daycare. That was my own experience when my two sons were young. It was cheaper to hire a nanny to care for both of them in my home than it was to put them both in daycare.
Conservatives shouldn’t ignore the possibilities.
So, there is a fiscally-conservative case to be made for subsidizing childcare costs for some parents – when it unlocks their ability to earn more, live better and ultimately pay more income taxes. But, the subsidy should be means-tested and flexible. Sometimes nannies may be a cheaper, better option for some families. That’s cost-effective not luxurious.
And, always, it should be the federal and provincial governments who carry the cost of childcare. Cities shouldn’t pay a dime for it.