A couple of sobering charts that should be setting off alarm bells about the direction of federal child-care policy can be found in a recent presentation by Gordon Cleveland, one of Canada’s foremost experts on the issue and an associate professor emeritus of economics at the University of Toronto.
Prof. Cleveland’s presentation focused on the accessibility and quality of child care in Quebec, tracing the evolution of the system in the quarter-century since that province started to construct widely available and subsidized child-care spaces.
But the observations he draws are pertinent to the entire country, given that the federal Liberals have conspicuously used Quebec as a model for their subsidized child care plans. In both cases, the proportion of families able to obtain cheaper child care will be relatively small in the early going.
The first chart illustrates the difficulties in rapidly ramping up capacity, as the Liberals have promised to do by 2026. Quebec did get off to a fairly quick start, with 51 per cent of children up to four years of age in a subsidized fixed-fee spot by 2005, up from 18 per cent in the late 1990s. But then the build-out of those spots stalled; by 2020, there were still only enough for 51 per cent of that age group.
Waiting lists for those spots grew, part of the reason why the Charest government put in place tax credits for parents paying higher rates for private child care. Spurred by those credits, that kind of child care expanded rapidly after 2005. The Quebec government is now moving to spend billions of dollars more so that additional families can access fixed-fee spots by 2025.
In a recent paper for the Institute for Research on Public Policy, Prof. Cleveland warned that the same could end up being true in other provinces, questioning whether Ottawa’s commitment of continued funding of $9-billion a year is adequate to provide enough subsidized spots for any family that wants one. “It probably isn’t,” he writes.
Critically, the economic case for child care rests on expansion of capacity. It is those added spots that will allow greater labour force participation. Cheaper child care is of great benefit to individual families, but not a measure that will boost the economy.
There’s a related question on who benefits from an increased number of child care spots. A second chart in Prof. Cleveland’s presentation shows that higher-income families in Quebec are disproportionately represented in fixed-fee child-care centres. In Montreal, nearly half of fixed-fee spots are taken up by kids from families with a household income of $200,000 or greater. Kids from families with a household income of $25,000 or less account for just 29 per cent of spots.
Prof. Cleveland says those lower-income families are much more likely to be using private-sector child-care centres that charge much higher fees, with tax credits actually leaving them better off. Still, that type of care is lower quality, he argues, and less desirable.
That’s part of the reason for the income imbalance in fixed-fee spots. The economic incentives for higher income households to use fixed-fee care – they benefit less from the tax credit – is also part of the equation.
But there is also an issue with social capital: Better off families have a greater capacity to secure a cheaper subsidized spot. That points to a challenge for other provinces. Take care to build those new child-care centres in regions where poorer families can access them, Prof. Cleveland advises.
But perhaps not too much care. He also notes that it is higher income households that will drive much of the economic benefits from child-care expansion. Push too far in reducing their over-representation, and those benefits will be reduced. That means policy-makers will need to strike a balance between equity and economic efficiency.
Taxing questions
Responding to recent coverage of the Canada Pension Plan, one online reader wondered about its sustainability, questioning that payouts might eventually outweigh contributions. The reader asserted that CPP works on the assumption that contributions will always be greater than payouts.
That’s not correct. In fact, the total costs of the CPP are likely to exceed contributions this year, according to the plan’s most recent actuarial report. Contributions were projected to hit $57.964-billion this year, while total expenses were forecast at $58.007-billion. One caveat: Those projections were made in 2019 and don’t take into account the effects of the pandemic. A new actuarial report is slated to arrive later this year.
Still, it’s likely that the crossover point at which expenses exceed contributions will happen shortly, if it hasn’t already. Does that mean that the CPP is in trouble, as the reader intimates? Absolutely not. The Liberal government of the 1990s made several important changes to ensure the continuing viability of the CPP, including a significant increase to contribution rates and the funnelling of those extra dollars into a national investment fund. Those excess contributions, and the return on investments subsequently made, will cover the gap between contributions and payouts. The report says that 22 per cent of the fund’s investment income will be needed between 2030 and 2050 to cover the gap, rising to 37 per cent by 2095. Even so, the fund’s principal is projected to grow during that time, since the majority of expected investment income will be retained.
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Recalculating net zero: Scotiabank is warning about the perils of an overhasty transition away from fossil fuels, arguing in a report last week that the phase out of fossil fuel production by the West is outpacing the addition of clean-energy capacity. That mismatch has increased energy security risks, writes Rebekah Young, a vice-president and head of inclusion and resilience economics at Scotiabank. Russia’s invasion of Ukraine did not create that imbalance, but it has “starkly underscored” the risks, she says.
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