Measuring the Impact of Child Care Subsidies on the Incomes of Mothers Returning to Work

Abstract

The cost of child care is one of the greatest financial barriers faced by mothers returning to work. In recognition of this cost, the federal government provides child care subsidies to assist families to meet the cost of child care.This paper models the use of child care services and the provision of child care subsidies to determine how effective the Australian government child care support programs are in reducing the financial barriers that make returning to work difficult for many mothers. Both childcare assistance and the newer childcare cash rebate are modelled. The impact of these assistance measures is examined for couples and sole parents on different incomes with one or two children in child care.It was found that child care subsidies are highly progressive and make a substantial contribution to vertical equity by offsetting child care costs related to employment. They also contribute to horizontal equity, by providing greater assistance in meeting child care costs for families with more than one child in care, in recognition of their greater need. Sole parents derived the greatest benefit from child care subsidies, particularly those on low incomes working full‐time and with two children in care.