Federal Daycare: A Solution in Search of a Problem
The creation of a Nanny State from cradle-to-grave continues to take shape.1
When he wrote the above words, Patrick F. Fagan, a senior fellow at the US-based Heritage Foundation, had the direction of contemporary American public policy in mind. However, the policy proposal that stimulated his comment is germane to the Canadian policy environment. The proposal is daycare funded by the federal government.
In the months preceding Finance Minister Paul Martin's February 28th budget speech, child care advocates and their political representatives applied considerable pressure on the federal Cabinet to launch a taxpayer-funded, universal daycare program. The premise for such action is straightforward: Canada has a child care crisis and government-run daycare is the only solution.
Prominent among those who want the federal government to create a national daycare program are members of the federal Liberal Party caucus' social policy sub-committee.2 This government- knows-best paternalism was most recently buttressed by a discussion paper written by Health Canada's Childhood and Youth Division. The paper explains that "it is increasingly unrealistic to expect that parents can undertake the task of ensuring early child development outcomes without systematic and structured support. The tasks are just too complicated and the competing demands on parents too engaging."3 Therefore, argues Health Canada, a national daycare program is required that would assist all children from 18 months of age.
The cost to taxpayers of such a system is estimated by Health Canada at $8.7 billion over five years. Independent estimates, however, put the cost between $5 and 10 billion annually.4 However, besides the financial and constitutional hurdles (daycare is an area of provincial jurisdiction), there are important empirical issues to address.
First, why the need for daycare, i.e., why are the "competing demands too engaging" for today's parents to raise their own children? Proponents of government daycare point out that the proportion of married couples with two income earners rose from 35 percent in 1967 to 74 percent by 1997. This growth in two-income couples reflected a dramatic increase in the number of women working outside the home - from 25 percent of all workers in the mid-1960s to 45 percent by the early 1990s.5 Furthermore, 86 percent of working women who give birth are back at work within a year.6
Given this alleged crisis, someone else needs to care for the children. Or do they? Is there really a child care crisis in Canada? And, even if there is a child care crisis, is government-run daycare the appropriate solution?
Interestingly, by both their words and their actions, Canadian parents demonstrate the fallacy of a crisis in child care, or, at the very least, a crisis that may be remedied by a greater role for government. Most Canadian families exhibit a strong preference for parental care of their children. This is followed by a preference for care provided by extended family members, such as grandparents. Both private for-profit and government daycare centres are viewed by Canadians as relatively undesirable providers of child care. Hence, it is unsurprising that the vast majority of Canadian preschoolers are cared for by their own families.
Public opinion is clear on this issue. Seventy-seven percent of Canadians maintain that the individual or the family, rather than the government, should have the primary responsibility for child care.7 If it were affordable, 89 percent of parents would prefer home care for their children over professional daycare;8 hence, 75 percent of dual-income couples wish they could afford to have one parent stay home and raise the child(ren).9
When asked what is best for a young child, 90 percent say the family home rather than daycare.10 Furthermore, when asked, "If you had the choice, would you stay at home to raise your children, or work outside your home and use daycare?" 70 percent of Canadian women answer, "Stay at home."11
However, by penalizing stay-at-home parents, our current federal tax rules discriminate against such preferences. How are these families treated unfairly by the tax code? Simply put, deductions for child care expenses are not available to all parents. Third party, institutional daycare is recompensed by the tax code up to $7,000 per pre-school child and up to $4,000 per school-age child. But stay-at-home parents cannot deduct child care expenses.
Revealingly, only 16 percent of Canadian families claim the Child Care Expense Deduction for commercial daycare (the average claim is $2,600); meanwhile, 33 percent of families have one parent at home full-time providing unpaid child care; and 19 percent of families have both parents working full-time but they either use non-profit private daycare (e.g., grandparents, friends, etc.), work from home, or work flex-time, so that one parent is always at home.12 Unsurprisingly, then, 82 percent of Canadian families want the tax code changed to make it easier for families with young children to have a parent at home.
Therefore, a federally-funded universal daycare program would further discriminate against families who keep one parent at home with their children. As Vancouver Sun columnist Pete McMartin has observed, "Stay-at-home parents who don't put their kids in daycare must be wondering why their tax dollars are subsidizing daycares at all."13
It is an increased tax burden, after all, rather than parental preference, that stimulates the demand for daycare in the first place. Consider that the personal income tax burden rose from 15.3 percent of family income in 1980 to 20.2 percent in 1997. Consequently, during the 1990s, after-tax real average family income (in 1977 dollars) fell 5.6 percent from $48,300 in 1989 to $45,600 in 1997.14 What has been the result? A 25 percent increase in the number of stay-at-home parents entering the workforce.
The most efficient public policy response is not to tax families more in order to subsidize the funding, staffing, and administration of a massive new government-run social program. On the contrary, the most efficient public policy response is to make it financially equitable for parents to raise their own children. As Patrick Fagan recommends, "Lawmakers should be giving parents choices and resources rather than handing power over to…child-care advocates and government bureaucracies."15
This may be achieved in one of two ways, either of which is more economically efficient than government daycare. If policymakers really want to help families afford child care, and in order to create a level playing field, legislators could convert the current child care tax deduction into a refundable child care tax credit available to all families, which they could apply toward the child care option of their choice regardless of whether they choose to raise their children at home or in institutional daycare.
A more fundamental reform is across-the-board tax relief. Cato Institute child policy expert Darcy Olsen's observation that "a vast majority of parents are content to manage their child care affairs without government intervention, and what they really need is an across-the-board tax reduction to enable them to do just that,"16 is equally applicable to the Canadian context.
In addition to promoting economy-wide efficiency gains through increased savings, innovation, productivity, and entrepreneurship, a substantive tax cut for all Canadians would significantly increase the average taxpayer's disposable income, thereby serving to empower parents to choose the type of child care they want, be it at home, in others' homes, or in institutional daycare centres.
The current momentum behind federally-subsidized daycare reflects a policy prejudice which assumes that the government is better equipped to decide what parents spend their money on than are parents themselves. Unfortunately, such well-intentioned paternalism results in economic distortions, i.e., it discriminates in favour of one group of parents at the expense of all others.
Such distortion is exemplified by Quebec's universal $5-a-day daycare program. A study released in January by Montreal's Institute for Research in Public Policy concluded that the $3 billion a year program leaves 72 percent of Quebec families worse off, assisting only 28 percent.
The true crisis in Canadian child care is that federal officials would contemplate spending taxpayers' money while not taking into account the real needs of parents. Rather than acting to stimulate parental choice in child care, the federal expansion of subsidized daycare would serve only to stimulate the daycare industry and the government bureaucracy that regulates it. A far more positive development would be a decline in the role of government in child raising so that the role of parents could increase commensurately.
Notes
- Patrick Fagan, "Government Child Care Creep," The Washington Times, Sept. 10, 1999.
- See, for example, Sheldon Alberts, "Social Liberals Demand Universal Daycare Plan," The National Post, Aug. 17, 1999. The federal government's first attempt to introduce a national daycare program collapsed in 1996 with only one province (British Columbia) on board.
- Quoted in The National Post, editorial, "Good Child Care Begins At Home," July 30, 1999.
- See, for example, The Vancouver Sun, "PM's Day-Care Idea Has Teething Pains," Oct. 14, 1999.
- Data from Statistics Canada, Income Trends in Canada, cited in Bruce Little, "Female Boomers Led March Into The Paid Work Force," The Globe and Mail, Feb. 14, 2000.
- Statistics Canada, Survey of Labour and Income Dynamics.
- Angus Reid poll, 1994.
- Poll sponsored by the National Foundation for Family Research, 1998.
- Ibid.
- Compas poll, 1998.
- Decima Research poll, 1991.
- Heather Gore-Hickman, submission to the House of Commons Finance Committee, 1998.
- Pete McMartin, "Day Care Is Not An Essential Service," The Vancouver Sun, June 8, 1999.
- Roger Sauve, Vanier Institute of the Family report on family incomes, Jan. 12, 2000.
- Fagan, "Government Child Care Creep."
- Darcy Olsen, Day Care: Parents Versus Professional Advocates, Cato Institute, July 1, 1998.
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.