Briefing paper

A comparison of the economic impacts of income tax cuts and childcare spending

Child care assistance Government subsidies Labour force participation Child care Economic stimulus Economic modelling Australia

This paper outlines a comparison of the impact on employment of child care expenditure and income tax cuts of an equivalent net cost to the budget.

The paper argues that the clear superiority of childcare expenditure in stimulating economic activity reflects the concentration of the benefit on a cohort with much greater capacity for labour supply response.

Key findings:

  • Almost 450,000 Australians with children under the age of 5 would like to work more hours
  • If these parents worked an additional 10 hours per week then, by 2030 GDP would be $15 billion per year bigger.
  • While net government spending of $2.8 billion on additional child care would create around 135,000 additional jobs per year by 2030, a similar expenditure on tax cuts would create less than 10,000 jobs.
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