August 19, 2010

Income Sharing: empowering parents


Parents make decisions about the care of their children. Often this decision is influenced by subsidies and penalties arising from government policy. Fostered by large-scale state subsidies the NZ childcare industry (and many of the providers are large commercial corporations) has become a juggernaut.

According to the Ministry of Education “The taxpayer’s contribution to the early childhood education sector has risen from $428 million in 2004/05 to $1.17 billion in 2009/10.”

The Minister of Education said recently that the cost of funding 20 hours free early childhood education for under five year olds had nearly trebled over the last five years and was projected to continue rising at about $200 million a year.

These subsidies are not just for low income households. In fact, according to the NZ Herald for families with three children or more the income eligibility threshold is currently $99,320 per annum.
In addition to the taxpayer largesse enjoyed by those who entrust the care of their children to State-funded carers, it is estimated that the 310,000 kiwi families who choose to care for their own children now pay as much as $450million more in tax per year than they would if each parent could share their income for tax purposes.

It’s one thing for one group of parents to get a helping hand from the State. But it is not reasonable for other parents who miss out on those subsidies and do their own caring to have to pay for the subsidies other families enjoy.

Why does it matter? Well if state-subsidised childcare was universally better for our children then it might be more difficult to argue against heavily taxing families that don’t use childcare centres. However, there is some evidence that full time childcare has long-term negative effects on learned attachment and behaviour. At best the evidence is mixed. In fact a Treasury paper on the subject says:

A meta-analysis by Violato and Russell (2000) on the psychological effects of non-maternal care on children in terms of cognitive development showed that children in day care are in all likelihood not at risk of negative outcomes compared to children in maternal care. On the other hand the results for the socio-emotional and behavioural domains showed clearly negative outcomes for non-maternal care. There were negative consequences for both boys and girls, analysed together and separately, however boys are seemingly more at risk. In terms of maternal attachment, children in day care arrangements were at increased risk of “insecure attachment” due to extensive non-maternal care. Maladjustment might not necessarily be causally connected to insecure attachment. There does exist substantial evidence that attachment patterns formed early in life extend into later childhood and adolescence and perhaps beyond, while there also exists evidence that early attachment patterns effect psychological adjustment in childhood. “

Quite apart from the debate about the costs and benefits of childcare the consequences of a cost-plus approach to childcare provision and widespread state subsidies is not hard to predict.

A Listener article from May 2004 stated that:

“…a government scheme paid bounty hunters up to $2275 a head for enrolling Maori or Pacific preschoolers raises far more damning issues.

… the Manurewa-based Whare Akonga Learning Centre received $1.13m – the most bounty of the 59 organisations that enrolled 5280 children nationally, at a total cost of just under $7 million. It has close links with two other Manurewa organisations that reaped $387,000 from the scheme. Both organisations were found by audits to have dozens of irregularities in their records. These included placing children in unapproved playgroups, claiming to have introduced children to preschools that had never heard of them, and providing names that turned up on another contractor’s database. There were high dropout rates for these children. And there was a clear conflict of interest, with bounty hunters placing children in their own organisations.

So should childcare subsidies be ended? Well the evidence on the effects of childcare centres is mixed. In any case with over 60% of families now hooked into childcare subsidies it would be a brave politician who unplugged the subsidy drip.

The supporters of income-sharing are simply saying – setting aside the arguments about childcare – parents should be free to choose without having the State making “an offer they can’t refuse”.

An income-sharing tax credit helps to restore the balance so that parents can make their own decisions about the care of their children.

The objectives of income-sharing are:

 give parents greater choice in their work and caring roles; and

 acknowledge the contributions of those who forego paid work to care for children.

The Taxation (Income-sharing Tax Credit) Bill introduces a new tax credit for couples with dependent children, based on sharing their incomes equally and paying tax based on half of the shared income.

The changes proposed in the bill will also mean some couples have greater choices to work fewer or more flexible hours of paid work in order to care for children, by increasing their combined after-tax income. At long last income sharing would give some recognition to the work done in the home caring for children.

New Zealand can empower parents and let them make their own choices if a majority of parliamentarians support the Income sharing Tax Credit Bill.  Write or email your MP asking them to support the Income Sharing Bill. Join the facebook group: Friends of Income Sharing at http://www.facebook.com/group.php?gid=145385598816660

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