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Prime Minister Justin Trudeau takes part in a child care announcement in Ottawa on Dec. 15.BLAIR GABLE/Reuters

The federal Liberals have long pointed to their expansion of cheaper child care as a catalyst for long-term economic growth by making it easier for parents to stay in or re-enter the work force.

But with inflation on the rise, Ottawa is also touting its child-care plan as a measure that will help families with young children cope with the rising cost of living.

“It’s going to make a huge difference to them starting right away as child-care costs fall by 50 per cent by the end of next year,” Finance Minister Chrystia Freeland told reporters as she delivered the government’s fall economic statement earlier this month.

In its fiscal and economic update, the government gave its estimates for how much families could benefit at the end of its plan to spend an additional $29.8-billion over five years to build up child-care capacity and to drive down fees. A family would save an average per child of as much as $6,000 annually in British Columbia by the end of next year, rising to average annual savings of $9,390 by the end of fiscal 2025-26. (Among the provinces, only Ontario has yet to sign on to the plan.)

But those predictions of large average savings omit one key detail: They don’t include children who are not in a licensed daycare spot. And, at least in the early going, that is the overwhelming majority of children, more than seven out of 10 kids under the age of 6. Some of those children receive care from their stay-at-home parents, but many are placed with unlicensed caregivers.

That means the inflation-fighting benefits of the Liberals’ child-care expansion will be enjoyed by only a minority of parents, at least in the early years. And it also means the putative big savings contained in the fall economic statement are overstated. It is akin to a student picking just their top classes to calculate an average grade; the resulting number would technically be a mathematical average, but it would not reflect their actual GPA.

As the chart below shows, that average masks even more lopsided situations in some provinces; Saskatchewan, for instance, has only enough licensed spots for fewer than two in 10 children.

But that balance will change over time: A key part of the Liberal plan is to dramatically expand the capacity of the licensed child-care system around the country. Five years from now, the goal is for the system to have enough spots to accommodate just under three-fifths of children younger than 6. But even in the spring of 2026, more than 40 per cent of those young children will not have access to a licensed daycare spot – and their parents will not benefit from federal subsidies to daycare providers to reduce out-of-pocket fees.

Ms. Freeland has described that result as a “universal” daycare system. Karina Gould, the federal Minister of Families, Children and Social Development, shies away from that term, but in an interview, said the planned capacity expansion under the Liberals’ five-year plan will mean that “pretty much anyone” who wants to place their child in a licensed (and federally subsidized) spot will be able to find one. The specific goal is to have a coverage rate of 59 per cent, meaning enough child-care spots for that proportion of children under the age of 6.

Ms. Gould says the 59-per-cent goal is based on the experience of Quebec, a pioneer among the provinces in building out low-cost and more accessible child care. The province’s two-decade-old program has dramatically increased the number of mothers in the paid work force, with Quebec moving from a national laggard in women’s labour force participation to a leader. And at least in the early years of the program, that led to higher provincial tax revenues that more than offset the extra public money spent on expanding child care.

At the same time, the low-cost non-profit centres at the heart of Quebec’s strategy haven’t been able to keep up with demand, leaving tens of thousands of parents relying on more costly for-profit operations. (The province has a tax credit for those parents that defrays some of the higher expense of that for-profit care.)

The federal Conservatives promised a nearly identical federal tax credit during the last election campaign, instead of the more expensive Liberal proposals. Some economists have suggested a combination of the Liberal approach and the Conservative proposal would be an effective way to build up the child-care system in the long term while ensuring that families not able to secure a subsidized spot still received some increased assistance.

Ms. Gould rejected that idea, saying the government’s focus remains on its five-year plan.

Some daycare advocates say the 59-per-cent goal, while ambitious in the short term, would still leave Canada well short of the mark for a truly universal system that would have a spot for any child whose parents want to place them in care outside the home.

Morna Ballantyne, executive director of Child Care Now, says a coverage rate of at least 75 per cent would be needed before it could be truly said there would be enough spots to meet demand – but it would take years to reach that point. Similarly, Jim Stanford, director of the Vancouver-based Centre for Future Work, said a truly universal system would need to resemble those of Scandinavian countries, which have enough daycare spots for at least nine in 10 children. However, he says, reaching that ideal level would take until the end of the decade. In the meantime, the Liberals’ goal for fiscal 2025-26 is a good start.

And there are other considerations beyond the raw capacity of the child-care system, notes Martha Friendly, executive director of the Childcare Resource and Research Unit. Governments will need to ensure there are enough spots for infants and toddlers, and in rural areas, for instance, she said.

Without committing to a further expansion in federal funding, Ms. Gould acknowledges those concerns. “Fifty-nine per cent is the floor, not the ceiling,” she says.

Mr. Stanford is among those economists who contend that daycare expenditures will pay for themselves through increased economic activity, including higher labour force participation by women. That is equally true of both the full-fledged version he envisions, and the more limited five-year federal plan, he says. The economic benefits of the smaller expansion are lower, but the costs to government are not as large, he noted.

The Liberals aren’t going quite that far, but the government does say its plan will add 240,000 workers to the labour force, increasing the annual growth in real gross domestic product by 0.05 per cent over the next two decades. In a statement, the Finance Ministry said it is sticking by that 240,000 forecast, even though participation rates have recently hit record levels. As the chart below shows, the rate for both mothers and fathers of young children has increased from January, 2020, with women experiencing the biggest gain.

Even with that rise, a substantial gap remains between women and men in labour force participation, with women trailing the most outside of Quebec, as this next chart shows.

Other economists, while agreeing that there are considerable economic benefits to expanded government spending on child care, don’t believe they are self-financing. University of British Columbia economist Kevin Milligan says his analyses indicate that increased economic activity generates tax revenues equivalent to 40 cents for each dollar spent on child care.

That is still a substantial return, notes Prof. Milligan, who was seconded to the Privy Council Office in fiscal 2020-21. Plus, there is an emerging question of the long-term economic benefits of increased child-care expenditures, beyond any short-term boost to labour force participation rates.

Prof. Milligan is in the midst of a research project into the effects of a “lifetime trajectory change” in the careers and earnings of parents resulting from expanded child care. That will boost the payback from such expenditures, although he doesn’t yet know how close that will bring them to the break-even point.

Ms. Gould is also eyeing a fiscal upside many decades from now, in addition to the social and individual benefits of expanded child care. Women who had an easy path to return to the work force will be less likely to enter retirement on low incomes, she says. Those improved personal circumstances could end up saving future governments a lot of money on anti-poverty programs such as the Guaranteed Income Supplement for seniors.

“I think the long-term economic impacts are going to be substantial,” Ms. Gould says.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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