Why Child-Care Subsidies Will Not Stimulate the Economy

Commentary, Economy, Paz Gómez

The federal government has spotted another pretext to increase its scope: subsidized child care. Despite knowing economic lockdowns have caused massive job losses, Ottawa officials argue that unaffordable child care impedes women from returning to the workforce.

Subsidies are a shallow, top-down policy that would generate aid dependency from child-care centres and parents. Instead, officials need to streamline and eliminate child-care regulations to encourage competition that raises service quality and lowers market price.

The Alberta government has done the right thing by questioning the feds’ recent announcement. In April, the 2021 federal budget committed to reducing child-care fees to $10 a day in regulated centres by 202526. The initiative will cost $30 billion over the next five years.

For policy execution, each province must approve and commit to accomplishing the stated goals. However, Alberta’s Children’s Services minister has requested the federal government provide more details and grant maximum flexibility with the funding. 

The minister explains that Albertan households have distinct child-care preferences. More than half of the province’s centres are privately owned, and just one parent in seven enrols his/her children in licensed daycares—which have seven or more enrolled children and operate on a permanent basis. 

“Let’s put that into context: to expand a universal program right across Alberta would cost more than $1 billion,” she said.

Subsidies are an Illusion 

For Alberta’s premier, the federal policy would promote the development of one-size, union-run daycare options that leave most parents out. For instance, rural households might not have access to licensed daycare facilities, and Indigenous communities might lack sufficient populations to run institutional daycare. 

The premier also stresses that “hundreds of thousands of Alberta families use a mixture of different solutions, including informal care.”

“The other thing is the federal policy apparently excludes participation from child-care businesses who operate as for-profits,” he says. “They’re a critical part of the child-care infrastructure in Alberta.”

In a similar vein, Ontario’s provincial government also believes the measures of the national child-care policy do not meet parents’ needs in the province. New Brunswick’s premier has been tougher, asking whether this is merely a vote-buying ploy for large urban centres.

Indeed, co-ordinating state-backed child care would not, on its own, generate better quality nor more affordable service. If the policy disregards household needs and lifestyles, taxpayers would only finance the officials’ whim to turn Canada into a literal nanny state. 

High prices often stem from burdensome regulations, which keep out competitors. While subsidies might work as a short-term Band-Aid, massively increased demand without increased supply is bound to generate higher costs and less pressure for quality improvements. 

Parents Need More Opportunities

According to economic consultancy RBC, almost half a million women lost their jobs amid the pandemic, and over 200,000 have remained unemployed for at least 12 months. Moreover, women account for 65 per cent of job losses in accommodation and food services, the most affected industries during the pandemic. 

Undeniably, the health crisis has changed households’ priorities and choices. If families lose the income of one or both parents, staying at home and taking care of their children is a reasonable option, especially when facing the risk of COVID-19 infection.

Another reason parents, particularly mothers, prefer to stay at home might be the lack of attractive job opportunities. Under this scenario, just a few of them would return to the workforce if provincial governments enabled subsidies for institutional daycare. 

A wiser measure would be to promote market competition and innovation, so that private child-care services can flourish, expand and leverage into broader services. Ensuring a favourable business climate would also fuel entrepreneurship in other industries, accelerating the economy and creating more jobs.

Strike the Root: COVID-19

Amid the pandemic, business-friendly regulation is not enough. Investors, entrepreneurs and companies need to be sure about mid-and long-term developments to continue their ventures and start new ones. Therefore, officials must prioritize a de-escalation of COVID-19 restraints.

Just as occurs with other businesses, daycare centres feel the pinch of COVID-19 unpredictability. Alberta has faced waves of infection in child-care centres. Most staff of licensed daycares have returned to isolation, since some tested positive for COVID-19 and others were close to infected people. Given the lack of personnel availability, child-care centres have to close at times. Economic costs are high since running a daycare costs around $50,000 per month. 

If officials do not address COVID-19 effectively, they risk throwing taxpayer money at child-care centres that lack healthy staff and cannot provide a permanent service. Rather than focusing on improvements, subsidies might ossify sub-par performance.

The federal government would do well to stop increasing public spending and return the reins of the Canadian economy to citizens and companies. Under a prosperous economic environment, entrepreneurs can create innovative child-care services, and parents can return to the workforce.

Paz Gómez is a research associate at the Frontier Centre for Public Policy.

Photo by Rashid Sadykov on Unsplash.