Paul Mitchinson is a part-time writer and a full-time father of two. He writes when he can. » more about me

UCCB chequeTwo things came to mind after getting my second "universal childcare" cheque in the mail the other day. First, there is numerical proof that I am now more father than writer, more caregiver than historian. It's been a difficult adjustment to make for someone who has virtually lived in libraries and archives, and who has spent far FAR more time in lecture halls than in playgrounds. But the numbers don't lie. I now earn my keep not through my pen, but through my children. And what a wonderful life it is.

The second thing I realized is how little reliable information there is out there about the Universal Childcare Benefit (UCCB): whom it benefits, whom it disappoints. The Toronto Star has lavished much hostile attention on the UCCB, but it has exercised impressive restraint in asking actual parents with young children what they think. (Its coverage of parental reactions to the UCCB announcement in the Conservative budget last May, for instance, consisted of two stories — one before and one after the budget came down. The reporter spoke to two families. In total. The same two were used in each story.)

For non-Canadians, a quick primer: the UCCB is a program introduced by the new Conservative government to support parents with young children. Instead of financing a system of universal state-subsidized daycare (as in the province of Quebec), the Conservatives chose to provide direct cash payments of $100/month for each child 6 and under. This money can be used to defray the costs of any kind of childcare arrangement — not just institutionalized daycare. (It can also be used to buy beer and popcorn, of course, but that's another story.)

Let's start with what is really bad about the program. First of all, the name. I was willing to hold my tongue when the Conservatives first dubbed their program the Universal Childcare Benefit, since it seemed plausible that the "universal" referred to the "benefit" rather than the "childcare." But now we have the official website, universalchildcare.ca, that exposes this little game.

The other major problem is that the UCCB is, in part, a shell game. The $1200/year UCCB was implemented at the same time that a similar $249/year benefit (the Canada Child Tax Benefit's Young Child Supplement) was axed. This is simple dishonesty. What's more, by replacing an income-tested benefit (the Young Child Supplement) with a universal benefit, higher-income earners benefit disproportionately. This stinks. It should be fixed.

But the bigger problem, according to the UCCB's main critics, is the program's overall tax design. Since the UCCB is considered income taxable in the hands of the lower-income spouse, it results in certain disparities among different kinds of families. The progressive Caledon Institute think tank has spent months focussing on modest-income ($30,000/year), dual-earner families as the "biggest losers " in this regard. Losers? How much income was snatched away from them? In February, Caledon claimed such families would benefit $460/year from the UCCB. In April, they adjusted this figure to $199/year. In May, they admitted the net benefit was actually over three times this — well over $600. So the "biggest losers" are actually winners — just not as big winners as other families, particularly single-income families.

Is this a problem? Well, equity is a laudable goal in tax design. Caledon's Richard Zuker got it just right when he opined in one recent paper that:

Regulated child care is clearly not the preferred or only acceptable method of child care for many parents in all circumstances. If the federal government is going to financially support the provision of child care, it is difficult to see why parents should not be treated equitably in exercising their choice.

Unfortunately, it's a little late in the day for Caledon and other "progressive" critics to be complaining about tax "equity" for parents. The system has been broken for some time.

This fact deserves emphasis: Dual-earner families reap massive tax advantages under the current tax system — particularly if they send their children to day care. While the Caledon Institute furrows its brows over a $100/year "inequity" that advantages single-earner couples, they remain conspicuously silent on the thousands of dollars that advantage dual-earner couples under the current tax system. Consider the following table, outlining how much tax an Ontario couple with one child could expect to pay in 2005:

Family income Tax burden (with no child in daycare) Tax burden (with $6,000 annual daycare expenses)
$30,000 single-earner couple $3,117 $3,117
$30,000 dual-earner (20/10) couple $2,254 $1,091
$50,000 single-earner couple $9,313 $9,313
$50,000 dual-earner (35/15) couple $7,270 $5,959

Just so we're clear here: If you're a family making all of $30,000/year, and you wish to raise a young child at home instead of leaving her in a daycare, the government considers this choice so absurd and socially irresponsible that it will confiscate $2,000 of your annual income. For a family making $30,000/year, that is a serious chunk of money. What if you're part of a family making the princely sum of $50,000/year (still well below the median)? Well, for the privilege of keeping your child out of daycare, you better pony up another $3,350.

The Canadian government, in other words, has already conferred massive tax subsidies on daycares or, to put it differently, tax penalties on those parents who persist in raising their young children at home.

It is this reality that highlights the incoherence of the advocates of universal state-sponsored daycare. Probably the most popular argument for this position is that families need two incomes to keep a household going today. Having one parent stay home to raise one's young children is "not a choice" for most couples today; it is a "luxury" reserved for only the most upper-income families.

To the extent that this is true (and there is definitely some truth to this position), what should a government do? Well, if these critics mean what they say about the restriction of parental choice due to falling family incomes, then the answer is clear: Expand these choices. If raising a child at home is a "luxury" — and thus presumably desirable but unattainable for many parents — why not work to make this "luxury" available to all? As things stand now, far from helping to enable this choice, the tax system is a significant factor in discouraging it. A multi-million-dollar universal daycare scheme would merely exaggerate the already massive tax incentives (and penalties) that have turned child-rearing in the home to be such an unthinkable "luxury."

Quebec daycare statsBut thanks to Quebec, which has already established its own universal daycare system, we now know that the critics of the UCCB are advancing an argument that is as robust as a soggy diaper. The notion that daycare is a social program designed to help lower-income families is a fraud. As careful research has shown, precisely the reverse is true. (Hat tip: economist Stephen Gordon over at breadnroses.ca) According to research completed by Mathieu Grenier, an MA student at Université du Québec à Montréal, the wealthiest 25% of families are more than twice as likely to send their children to daycare as the poorest 25%. (Click on the table on the right.) Wealthy families also enjoy childcare subsidies over twice as large as poor families. If this is an example of a successful social program designed to help the poor, I would hate to see a failure.

One Response to “Daycare vs childcare: Cui bono?”

  1. Hey Paulmitchinson,
    On a similar note,, A lot of parents feel guilty about placing their kids in children daycare. They have this misconception that doing so is equivalent to ditching the kids and letting someone else raise them. But that’s not true. The best daycares offer services that will benefit your kids in a variety of ways.
    Keep up the posts!

    How to supplement income,part time income