In this UNSW New Economic Policy Initiative paper “(Un)Taxing Child-care Boosting Choice and Labour Supply through Subsidised & Tax-Deductible Child-care in Australia” by Rosalind Dixon, Richard Holden & Melissa Vogt, the authors advocate allowing childcare costs as a tax deduction.
Download the Full Paper (pdf)
Australia’s child-care system has a number of strengths: it ensures high-quality care for a large number of Australian children. It is sensitive to the needs of disadvantaged children and families. And it contributes to child-care being accessible and affordable to large numbers of Australian families.
But it also has clear limits: a significant number of families report difficulties in accessing and/or affording adequate child-care. Lack of access to appropriate child-care is also a major obstacle to female labour-force participation in Australia.
In this report, we therefore argue that broadening the accessibility and affordability of child-care would offer important benefits for female labour-force participation — and the Australian economy more broadly. And we propose doing so in a quite specific way — by:
- Allowing any households who want to use the current arrangements to continue to use them with no modification, and;
- Allowing any household to opt to forego the current arrangements and instead receive a tax deduction for child-care expenditures up to $60,000 per annum.
Under our proposal, in two-parent households, each parent would qualify for 50% (of their marginal tax rate) deductibility.
By construction, this ensures that no household is worse off under our proposed reform—they can always stick with their current subsidy if they so choose. Only households that would be better off under the tax-deductibility option would choose to avail themselves of that option.