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What Childcare Tells Us About Economic Growth

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Canadians will be finding themselves in voting booths soon.  While there are several issues being discussed this time around, the differences between the two parties that have a chance to form a government are more subtle than they have been in previous campaigns.  One policy question where there is a clear distinction, however, is childcare.  On that issue, the Liberals and Conservatives are wildly divergent.

 

The backdrop for the competing options in is the overall economy and how differing approaches to childcare might play out in the broader context.  That context includes considerations like competitiveness, demographics, expected and assumed GDP growth, the shape of the recovery, lifestyle affordability and implications for possible productivity gains.  In short, while many people see childcare as falling within the purview of social policy, its spin-off implications have very real consequences for economic policy, too.

 

Presently, Canadians can deduct the costs of eligible childcare from their taxable income (the lower earner of a couple), to assist with the household calculus of whether one parent should stay home or not.  The lower earning parent can deduct up to two-thirds of their earned income for the year, the actual childcare expenses they paid, or a maximum of $8,000 per year for a child under age seven, or $5,000 per year for a child between seven and 16—whichever is lowest.  In short, there are already childcare policy incentives in place.  Now, its just a matter of how to tweak these options most effectively.  Most recent estimates put the average cost of childcare at $1,578 a month.

 

The Liberals set out their policy in their 2021 budget.  They pledged to build “a Canada-wide, community-based system of affordable early learning and childcare, which aims to achieve, on average, $10-a-day childcare spaces for Canadian families.” There’s a lot to unpack there.  The short-term goal here is to achieve a 50% reduction in average fees by the end of 2022.  The ultimate $10-a-day goal is targeted for 2025-26.  The New Democrats supported the budget (and childcare policy) and seem to be offering a nearly identical approach.  Notably, eight provinces have already signed on to this (childcare is a provincial jurisdiction), so the take-up has been relatively swift.  The pledge is to create 250,000 spaces over 5 years at a total cost of $30 billion.  Household cost of childcare would be $210 / child / month. It’s a big-ticket item.

 

The Conservatives, in contrast, are not lowering costs.  Instead, they are promising to cancel the Liberal program and “convert the childcare Expense Deduction (CCED) into a refundable tax credit covering up to 75% of the cost of childcare for lower-income families.”  They say this will “increase the support that lower-income families receive by thousands of dollars per year and provide more assistance to almost all families.”  One common complaint is that, even with these changes, many families will not be able to afford proper daycare and furthermore, there wouldn’t be enough spaces to go around if they did.  It looks as though childcare would cost the average family $1,178 a month under this plan.  In short, the Conservative policy would be to give parents some money and leave it to them to determine how to spend it, without addressing the supply problem.

 

Here’s where we get into the broader questions of what is best for the country.  It is widely accepted that much of the (albeit modest) productivity gains made over the past few decades have come due to increased female participation in the workforce.  Given the broad consensus that Canada will need “all hands on deck” in order to simply keep GDP growth at the 1.75% that the Parliamentary Budget Office is projecting for the next decade, we need to do all we can to allow parents (especially mothers) to find gainful employment.  Patchwork solutions might not provide enough cover for parents to be able to find full time work in their communities and some might drop out of the workforce as a result.  Parenthetically, it should be obvious that we Canadians will need far more licenced childcare providers than are currently available, as well.

 

Growing a competitive economy in a world that is constrained by tightening trade restrictions, tenuous supply chains, increased insurance claims due to a growing list of climate disasters and the recognition that government support cheques will need to end fairly soon, we clearly need to do all we can to unlock whatever economic potential we have.  Sometimes, the best way to unleash the awesome power of the free market is for the government to provide cover so that the people who strongly want to be contributors can have the wherewithal to do so.

 

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