Childcare Funding 20x More Effective at Creating Jobs than Tax Cuts

Increased public funding for child care is nearly 20 times more effective at creating jobs than a tax cut of the same size according to new macroeconomic modelling released by The Australia Institute today.

The new report entitled ‘A comparison of the economic impacts of income tax cuts and childcare spending’  by Dr Janine Dixon, Senior Research Fellow at Victoria University’s Centre of Policy Studies, compares the cost, employment creation and impact on GDP of increased spending on child care and income tax cuts.

Key Findings:

  • Almost 450,000 Australians with children under the age of 5 would like to work more hours
  • If these parents worked an additional 10 hours per week then, by 2030 GDP would be $15 billion per year bigger.
  • While net government spending of $2.8 billion on additional child care would create around 135,000 additional jobs per year by 2030, a similar expenditure on tax cuts would create less than 10,000 jobs.

“While cutting taxes can provide an incentive to work longer hours, it is unlikely that this has much effect for individuals on high incomes as most of them already work full-time. Given the low likelihood that high income earners will respond to income tax cuts by increasing their hours of work, tax cuts to high income earners therefore represent little more than a transfer of funds from the government to high-income households, with limited spillover benefits to participation rates, total hours worked or GDP,” explained Associate Professor Janine Dixon, Economist at Victoria University’s Centre of Policy Studies.

“While the Government has said repeatedly that the best way to repay its record deficits is to grow the economy, the Government is yet to provide any evidence to support its claim that the best way to grow the economy is to spend $300 billion on income tax cuts, most of which go to those on above average income,” said Dr Richard Denniss, chief economist at the Australia Institute.

“What this modelling shows is that spending money to directly employ people in childcare and directly helping those people who are currently prevented from working is a much more effective way to create jobs than to give money to people who are already working full time in the hope that they might work even more. It is not just good economics to invest in childcare, it is common sense.”

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