Michael Taft outlines the economic and social case for moving to a public childcare system.
The Republic of Ireland has one the most expensive and least accessible childcare systems in the European Union. This results in a financial burden carried by households – through lower disposable income or inability to take up work – and the economy, which is burdened by the loss of non-childcare consumer spending and lower workforce participation.
Sectors of the media and the private childcare industry claim that high labour costs, high rental and utility costs, and high levels of regulation are responsible for the cost of childcare in Ireland compared to other EU States. The real cause is that childcare is largely provided through a market model in Ireland whereas in most other EU countries it is provided through a public service model.
Childcare is an expensive service. It is very labour intensive, with up to 80 percent of total operating costs taken up with personnel costs; it requires special conditions such as space, heating, food, first-aid and health provision, maintenance, access to toys, etc.
There is little sense in blaming current service providers for the high costs, many of whom are community and non-profit providers. In a market model, revenue has to equal, if not exceed current expenditure. If there are no State supports, then for the most part that spending has to be met from childcare fees.
That’s why most EU countries provide childcare as a public service, provided at below-market fees. Otherwise, it would be a burden on households, if not putting childcare out of the reach of many low and average income groups, defeating the purpose of greater labour market participation. The key here is public service at below-market rate.
The Republic’s reliance on a market model means that childcare is not planned. It waits for a private sector provider to see the “gap in the market” or for a community group to struggle to fill a gap in a vital service. This can only produce a patchwork and accidental network of childcare provision. A public service model would use demographic models to assess where childcare places need to be, both today and years ahead.
Governments and local government have tried measures in the past to solve what many accept is a “childcare crisis” – but as long as they rely on a market model, they are likely to produce an inflationary spiral which means that households are not any better off.
Fianna Fáil’s Early Childcare Supplement introduced in 2006 was an annual €1,000 payment in respect of all children under the age of six. However, it had little to do with childcare as it was paid to all qualifying households regardless of childcare costs; it was merely a Child Benefit age-supplement. The impact on affordability and accessibility of childcare was insignificant.
The move fed an inflation in childcare costs. In 2008, in the 12 months up to December, childcare costs rose by nearly 8% when the total inflation index rose by only 1%. There are two reasons why. First, simple market logic; when high demand meets low supply, prices rise. They rise further when you boost that demand with more money. Second, many service providers, knowing that their customers had more money via the State, increased their fees. This was understandable – during this period childcare regulations were tightened, resulting in higher costs for service providers (and many providers had to close down). In a market model, providers must recoup costs from their customers. So this is not necessarily profit-taking, it’s just the way the market operates.
Similarly a childcare tax credit may have a similar perverse effect if supply does not match demand (it doesn’t) and service providers try to recoup costs they have to bear over the years of austerity; or in the case of labour, postponed “costs” through freezing or cutting wages.
The solution – public provision
A new, Statewide childcare model would be relatively straight-forward. Just as the State provides primary education places for all children, it should provide affordable childcare places to all households who need it. Using an estimate of unit childcare costs, a single childcare place would cost nearly €1,100 per month to provide. Let’s assume “affordability” to be a basic fee of €250 per month – for low-average income households, social transfers could be introduced to ensure affordability.
This would mean that for every 1,000 affordable childcare places, the “cost” to the State would be €11 million. What would be the demand? We don’t know this number since so many households cannot currently afford formal childcare but may take up this new service. However, an initial demand for 20,000 places would have a gross cost of €220 million. But the net cost would be far less.
As stated, 80% of costs are comprised of labour and wages. The Exchequer would benefit from the additional personal tax revenue (income tax, USC, PRSI) and spending taxes, along with lower unemployment costs.
Twenty percent of costs come from purchases of goods and services (non-wage consumption). This benefits private sector companies supplying the childcare facilities. This means even more tax revenue.
Most of all is the increased income that households receive; childcare fees falling from €800 per month to €250. This reduced spending would be, for the most part, redirected into the consumer economy, and thus boost consumption and growth.
Households with high childcare costs would receive a substantial boost in living standards while the economy would benefit from the increased employment, wages and demand. There is no tax cut that could match this benefit, either at the household or economy-wide level.
Children Leading the Way
It doesn’t have to stop here. A new market – a public market – would be created, with people working in the industry receiving enhanced training, paid a decent wage, and provided career paths which now don’t really exist, especially in stand-alone childcare facilities. But we could expand this market to a number of child-related activities.
Educare: most EU countries that provide public childcare services are now developing them into systems of “educare” – combining education and childcare. This has significant benefits to the child, receiving education at an early age, spread out through all social classes, thus increases social equity and equality.
Wrap-Around Schools: another policy development which is taking off in the US is to use schools as a wider community and social asset. With increased resources, schools are kept open all day and into the evening to allow for after-school clubs, homework clubs, additional and special courses, with community groups availing of rooms and facilities.
This is part of a general increase in educational investment – including pre-primary education (another area where Ireland compares poorly to the other EU countries).
The current model of childcare in the Republic, based on a market model, is inequitable, inaccessible, expensive and unsustainable. A public service model can deliver a qualitatively better service at an affordable cost and be a driver in promoting living standards, economic growth and social equity.
The writer is an economist and research officer with Unite the Union.