New Zealand’s childcare provides a life-changing support system and educational community for families. It’s also among the most expensive in the developed world, with statistics showing that 37% of a couple’s average earnings go on childcare. This leads to many families having to make difficult choices about their career paths and/or having another child. What can be done to help?
Auckland teacher Lana* and her husband Carl have a two-and-a-half-year-old and a 15-month-old. Their daughters’ spots in an Early Childhood Education (ECE) centre cost $800 a week, which works out to about $44,000 a year.
Between them, Lana and Carl earn $185,000 per year. After each of them pays tax (in different tax brackets), their combined tally is $2700 in the hand each week. So they’re paying bang on 30% of their income for childcare.
“It’s crazy,” Lana says, “that so much of what we earn is swallowed up by childcare. Our ECE centre is pricey but it’s the only close to our home that had places available, and we still had to go on a waitlist.”
This month, the government enacted its campaigned-upon ‘FamilyBoost’ scheme which gives low-income and middle-income families a tax rebate for up to 25% of childcare expenses, for up to $75 a week, for families earning up to $180,000.
Lana’s and Carl’s combined income of $185,000 means they don’t qualify for the rebate. “If I quit my job, we’d qualify,” Lana says. “But I don’t want to quit my job! People reading this might think I should be at home what with my kids being so young. But I needed to go back to work when my second child turned one because I could only get a year’s maternity leave. I want to work and I need to work!”
Financially, they’re just managing to meet their steep mortgage payments and basic bills. “There are no meals out, no holidays, nothing like that.” They’re counting down the months until their eldest qualifies for the government-funded 20 ECE hours a week. Children aged three and over get 20 free hours per week (with a maximum of six hours a day) in an ECE service, in kindergartens, and in kōhanga reo that offer the 20 ECE hours.
“My ECE centre is fabulous,” Lana says. “And we’re lucky we can afford childcare at all. I know people who are really struggling financially and can’t afford childcare. To me it feels like the system is broken in some way.”
Is Lana’s and Carl’s situation unusual? Unfortunately, far from it. Statistics show that, in New Zealand, 37% of a couple’s average earnings go on childcare. With that bonkers percentage, New Zealand actually tops the OECD charts – and not in a good way. For specific details and measures, see the graphs and tables here.
The Issues Facing The ECE Sector
As you might know, Early Childhood Education (ECE) is a formal, teacher-led early-learning service for children up to the age of six. This happens in ECE centres (often called daycares), in kindergartens, and in some home-based care.
Right now, the sector is facing a lot of issues. These include long waitlists, teacher staffing shortages and pay-parity issues. But for this story, I’m focusing on cost concerns for parents.
Dr Aisling Gallagher is a childcare researcher at Massey University who examines different international models of how families and governments fund and deliver quality, affordable childcare.
“Childcare in New Zealand remains very expensive,” she tells me, “especially for families with children aged two and under. Although every child gets some amount of government subsidy, children aged two and under do not receive the government’s 20 hours ECE payment weekly, which makes a significant difference to working families. There is also variability in cost across the country, with parts of our major cities reporting the greatest shortages of childcare services and the highest costs.”
The 20 free hours are a big help, without a doubt. But many parents, if they’re working fulltime, will still need to pay for approximately another 20 hours for that child even after they turn three. If you also have a child younger than three, things get very expensive.
How Are The Costs Affecting Families?
High childcare costs are significantly affecting families who are also dealing with the cost-of-living crisis, and steep rent and mortgage payments. What are they giving up to pay for childcare? In some cases, it’s hairdresser appointments and takeaway coffees. For others, it’s healthy food.
For many women, paid childcare isn’t an option because they’d simply earn less than childcare costs. Michelle*, a solo mum from Nelson who spends 24/7 with her 18-month-old daughter, says that “if the government fully funded two or even just one day a week of childcare, that would make a huge difference to me. It would mean I could do some paid work and use that money to pay for nutritious food.”
Alice* says that the steep cost of childcare was a major factor in not having a second child. “It just wasn’t financially viable when we’re struggling to pay our mortgage and ECE fees for one child.”
Some mothers feel forced to do two things at once: work and parent at the same time from home. It’s not uncommon to see women at playgroups – where parents are meant to supervise – doing work on their phones or other devices because they can’t afford childcare.
Parents Having To Do It All
Aucklander Louise* and her husband have a five-year-old, three-year-old and 18-month-old. “At one point we had three children in childcare!” She says they’re lucky they can afford childcare. “I absolutely love the centre my children are in. But I know the cost means it [childcare] isn’t accessible for lots of families.”
Louise says it seems “contradictory” that a parent is eligible for paid parental leave for only six months – or up to 12 months (depending on the policy of the organisation they work for). “At the same time, WHO [the World Health Organisation] recommends mothers breastfeed til age two, which obviously comes with its own issues, and then a childcare subsidy only kicks in at age three. It’s absolutely a challenging situation for parents of young children.”
Especially for women. It’s like: get back to work ASAP, pump breastmilk there for a year, while also paying a lot in childcare. Add in limited sleep and it’s no wonder that many mums aren’t doing too well.
How The Government Could Help
Marisa Fong, an entrepreneur, investor and speaker, says that childcare issues are particularly difficult for women. “As a supporter of women in business and their careers, I see how much stress childcare poses, both financially and with feelings of guilt as well. If we want to send a message that we value parents returning to the workforce, there needs to be high-quality ECE options and financial support from the government. In many cases the sums just don’t make it worthwhile for both parents to work.”
Marisa supports women who choose to be the full-time caregiver and aren’t doing paid work. And she also notes that, for some women, “extended time out of the workforce can lead to a lack of confidence and devaluing of their own skills and experience”.
“If both parents need to do paid work, there should be [government] help to enable them to return to work. Even if childcare was funded for 32 hours rather than 20 hours, that’s four eight-hours days which would really help parents.”
Marisa says the government should at least make the “balance of hours” – those that exceed the 20 free hours – a tax-deductible expense. In New Zealand, childcare costs aren’t tax deductible, largely because childcare is considered private expenditure as it doesn’t directly produce taxable income.
A Much-Needed Boost For Families
Many parents have been eagerly awaiting this month’s roll-out of the government’s FamilyBoost tax-rebate scheme for up to 25% of childcare expenses, for up to $75 a week, for families earning up to $180,000. “Up to” are the key words here. Although the government says 21,000 families will be eligible, it’s actually only around 3000 families who will get the full benefit of this scheme.
Violet Madeleine Wilson-Baird’s four-year-old and one-year-old are at an ECE centre for three days a week. “I have them on Tuesdays and Thursdays and I work 15 hours a week. That barely covers our daycare costs, but it’s a good balance of working outside of the home and spending time with the children.”
Her eldest gets 20 free ECE hours. “But childcare still costs us $685 a fortnight, yikes! What keeps us in the centre is the quality – it’s community-based, the staff are qualified and happy, and there’s very little turnover [of staff].”
“The [FamilyBoost] tax rebate will make a material difference to us but it’s admin-heavy on our end and hard to access. We were trying to refinance our mortgage and our childcare costs have made it hard. Because the rebate is only paid out every three months, it wasn’t something that our bank really took into account. On our end we would have far preferred an extension of the 20 hours of free ECE.”
Is The Tax System Too Hard To Navigate?
Dr Aisling Gallagher has some concerns about tax-rebate schemes.
“Overseas experience shows there are some fundamental flaws with offering rebates for childcare. As seen in Australia, tax rebate schemes are administratively burdensome, ultimately making the system confusing and complicated for parents and providers to navigate.”
“International experience suggests rebate schemes do little on their own to reduce childcare costs in highly privatised childcare markets. Although money goes directly to parents, [the] evidence shows there are limited benefits to families if there is no cap on the costs that providers can charge. Any money going to parents risks being absorbed by fee increases.”
What about making childcare tax deductible? Aisling says that, as with tax-rebate schemes in countries including Australia and the UK, tax-deduction schemes “have been extremely cumbersome to manage both from the IRD side and from the parents’ side of documentation”.
What Can Be Done To Help Families
Aisling says that “internationally, countries like Canada, Australia and Ireland, which have had comparable systems to New Zealand, are currently investing heavily into childcare in order to directly reduce the out-of-pocket cost to families. This is occurring primarily through increasing public funding to services, in tandem with strategies to cap fees for parents.”
Currently, the new Minister for Regulation David Seymour is doing a rushed ‘regulatory review’ of the sector. Members of NZEI Te Riu Roa, the union for early childhood education, says the review doesn’t address the many issues they’ve been speaking up about for years, and could actually make things worse.
Perhaps something that Seymour and other politicians could consider is that New Zealand’s birth rate is continuing to drop, and is now at 1.56 births per woman. If they want a population ‘replacement level’, then how about making childcare more affordable and accessible? Or how about doing that just because it’s the right thing to do?
