Child care will be a major issue for all political parties in this fall’s federal election. There is no consensus on the best approach for helping parents. Alexandre Laurin of the C.D. Howe Institute favours direct payments to parents, while Morna Ballantyne of Child Care Now argues for funding child-care services directly.


There can be many reasons for society to subsidize parents for the cost of child care. The financial hurdle for a parent considering the merits of working versus staying at home to care for young children can be extremely high — especially at lower levels of family income, where incremental work hours are taxed heavily.

Mothers, in particular, are hard-hit by absence from the workforce and face larger wage penalties the longer they are away from paid work.

For economists, the main motivation for subsidizing child care is to encourage parents to participate in the workforce, thus boosting the economy through higher household incomes. As an added bonus, the extra income generates increased tax revenues, substantially offsetting the initial cost of the subsidy for governments.

Child care then is clearly beneficial to families and the broader economy. So now the question becomes: What is the best approach to subsidize child care? Should we give money directly to parents, or indirectly through a centralized system of licensed daycare centres offering spaces at a subsidized cost?

Although both systems have their own advantages, a tax-based incentive, such as Ontario’s CARE credit, or federally, a generous refundable tax credit for child-care expenses, would be the most promising approach for Canadians.

The financial hurdle for a parent considering the merits of working versus staying at home to care for young children can be extremely high — especially at low to average levels of family income. The tax burden doesn’t help either. This is where putting money directly in the hands of families helps.

Take, for example, an Ontario family of four with two young children and the father earning $50,000. The mother is considering taking on some work earning $25,000, but would lose around 45 per cent of it to taxes and income-tested benefit reductions.

If children need to be placed into daycare, at say, an annual cost of $7,000 per child, she would lose another 40 per cent of her pay to daycare costs, net of the benefit of the existing tax deduction, sucking up almost 84 per cent of her gains.

The new CARE credit starting this year in Ontario will help, giving her back 23 per cent of her income, for a total hurdle of still about 60 per cent of her income. The CARE credit, costing the Ontario government $400 million or more per year when fully implemented will help create a hybrid system of both cash inducements for parents and targeted price subsidies at some licensed centres.

Compared to a more centralized and rigid model of heavily subsidized licensed child care centres, decentralizing the provision of child care by giving money directly to parents provides the advantages of competitive consumer markets: greater choices, innovation in staffing, various facility types, and more flexible hours and modes of care.

By subsidizing child care in all settings, a decentralized approach is also fairer for parents requiring flexible hours. Only a limited number of licensed centres in Ontario offer evening and weekend care; a stark contrast to home providers, of whom more than a quarter offer evening or weekend care.

Another advantage of tax-based cash inducements is the potential speed of implementation and the low cost of administering the program through the tax system.

For the federal government in particular, looking for effective ways to make a difference, offering a tax-based cash incentive, such as a refundable child care credit would make the most sense. Ottawa taxes incomes much more heavily than provinces. Therefore, it also stands to collect much more extra taxes from the employment boost a credit would generate.

In a previous study, Kevin Milligan and I estimated that replacing the inadequate federal child care expense tax deduction by a generous refundable tax credit would encourage many stay-at-home mothers to take on paid work and remain employed over the long term, alongside increasing government revenues.

Federally, such a scheme could “pay-for-itself” over the long term, especially after adding in the fiscal dividends for the provinces of extra tax revenues at no cost to them — dividends that could be invested in their own child-care systems.

In light of these advantages, I find that financial support to parents via the tax system is the most promising approach to subsidize the cost of child care.

Alexandre Laurin is director of research at the C.D. Howe Institute.


Morna Ballantyne
Child Care Now

Giving parents money to help fix their daycare problems doesn’t work. Never has and never will. It might be good electioneering; promises of financial aid are understandably attractive to parents struggling to pay high daycare bills but that doesn’t make it the right or responsible way to spend public money.

The experience in Canada and elsewhere shows the best, most equitable, most effective way for governments to help parents is to fund child-care services directly. It’s the best way to lower parent fees, and the only way to expand services to offer child care choice. It is also the only way to raise program quality to give real meaning to the idea that children deserve the best start in life.

If cash-to-parents was good child-care policy, Canada wouldn’t still be in the mess we’ve been in since mothers entered the workforce in large numbers in the 1980s. Truth is, the predominant Canadian funding approach has been to give money to parents directly through cheques, tax deductions and credits, or indirectly through parent fee subsidies for the few who qualify and can find child care.

The results: parent fees, already unaffordable, go up each year, often faster than inflation. Large swaths of rural and urban Canada are child-care deserts with three or more children competing for a single space. Tens of thousands of children are on wait-lists. Child care programs struggle to cover operating costs and avoid closure.

This failed funding approach has also contributed to the staffing crisis in child care. Funding to parents doesn’t translate into higher pay for early childhood educators, who earn far less than their worth. Consequently, recruitment and retention of qualified staff remains one of the biggest barriers to opening new programs and to raising child care quality — because you can’t have more and better child care without enough properly paid, qualified staff.

Why then does cash-to-parents get advanced over and over again as a child-care solution, election after election? In his recent interview with the Toronto Star editorial board, Conservative leader Andrew Scheer restated the familiar but false argument: because “parents have different needs” and “government daycare is one-size-fits all,” best to give parents money to spend on whatever they want.

He mischaracterizes Canada’s licensed child care, which is neither government-run nor one-size, but rather a mix of centres, nursery schools and home-based services, primarily operated by community non-profit providers.

Additionally, he wrongly suggests — ignoring all of the evidence to the contrary — that licensed child care can’t be shaped and funded to include parents now shut out because there isn’t child care where they live, or because they work non-standard hours, or because their children’s needs aren’t being accommodated.

The promise that putting more money in parents’ pockets would allow them to buy their choice of child care is disingenuous: he knows giving money to parents won’t create more safe, high quality licensed child care. He ought to know, as research shows, this is the child care most parents would choose if it was better funded to make it more available, affordable and designed to meet their needs.

Scheer and Premier Doug Ford and others who advocate for cash transfers don’t do so because cash-in-pockets will solve child care woes. They do so because mailing a cheque to voters, or giving tax breaks, is easier than building a proper child-care system. They can say they’re giving something to everyone, although they know their cash payment — inevitably too small, even if non-taxable — won’t buy much child care.

They prefer cash-in-pockets because they reject a long-held Canadian belief — one that gave us medicare and public education — that the role of government is to organize and fund collective solutions to problems individuals alone can’t solve.

Parents need the federal government to step up. Yes, many rely on income support, like the Canada Child Benefit, which has without a doubt lifted thousands of families out of poverty. New parents also need better paid parental leave and will be looking for bigger improvements on that front beyond tax-free EI benefits.

But income transfer payments are no substitute for expanded and improved child-care services — parents and children need both adequate income and quality services. They are tired of waiting.

Morna Ballantyne is executive director of Child Care Now, Canada’s national child care advocacy organization.