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Tax concessions or transfer payments – an examination of child care reform proposals

Published on 01 Jul 07 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

Child care policy involves balancing a number of policy objectives, including workforce participation rates by parents, access to early childhood education, ensuring the quality of child care services and ensuring that supply meets the growing demand. While access to child care has always been a contentious issue in public policy, over recent years the need has been driven by productivity issues; in order for Australia’s economy to continue growing, married women must be encouraged to remain in the workforce. Three key reports have been recently released, making recommendations as to how the system of tax incentives and transfer payments can be reformed to make child care more affordable, thus making work more financially rewarding for mothers. These recommendations include increased transfer payments; tax deductibility of child care; earned income tax credits; and fringe benefits tax (“FBT”) exemptions. This paper examines the proposals in each report, considering the efficiency and equity of each of the proposals. It concludes that while the proposals may make child care more affordable in the short term, they all decrease the equity of access to child care for lower income families. In the absence of measures to improve the supply and/or location of child care places, they will result in increases in child care costs.

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Helen HODGSON

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