Economics Report: Analyzing the Effects of Childcare Subsidies

This report analyzes the market for childcare services, focusing on the impact of government subsidies in Australia. The analysis begins by examining the growing need for childcare services among working families and the price elasticity of demand and supply within the market, considering the number of providers and eligibility requirements. The report then explores the rationale for subsidies, highlighting the increasing costs faced by families and the government's role in maintaining affordability. A key component involves the use of a supply and demand model to illustrate the effects of subsidies on market equilibrium, showing how they can lower prices and increase the quantity demanded. The report also details the specifics of the Australian government's childcare subsidy program, including eligibility criteria, subsidy percentages, and annual caps. The analysis further assesses the impact of the subsidy scheme on different income groups and the labor force participation of parents, particularly single parents and working mothers. Finally, the report suggests additional policies, such as community-based childcare services and workplace childcare programs, and evaluates their potential effects on service providers and government expenditure, supported by a Gantt chart outlining the research process.

Running head: EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
Name of the Student
Name of the University
Author Note

1EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
Table of Contents
Response to 1:............................................................................................................................2
Response to 2:............................................................................................................................2
Response to 3:............................................................................................................................2
Response to 4:............................................................................................................................3
Response to 5:............................................................................................................................4
Response to 6:............................................................................................................................4
Response to 7:............................................................................................................................4
Response to 8:............................................................................................................................5
Response to 9:............................................................................................................................5
Response to 10:..........................................................................................................................6
Response to 11:..........................................................................................................................6
References..................................................................................................................................7

2EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
Response to 1:
Childcare services are a growing need for working families. These services assure
women the safety of their children and work. This ensures parents with the building of the
motor skills of their child. As a result, parents can work without worrying about their
children. Thus, working parents are the purchasers of this service.
Demand for Childcare or day-care services in Australia is price elastic. This is because there
is a large number of childcare services available for the parents (Van Robays 2016). If one or
more of the childcare service provider increases their price, the demand change will be
greater. This can be viewed from a large number of service providers present in the market.
Response to 2:
There are several Childcare providers in Australia. Anyone who has a minimum
education qualification of high school or post-secondary degree along with a degree in early
childhood education is eligible to become a childcare service provider. Moreover, work
experience with certain skills is also mandatory. Apart from all these, they should hold a
license from the government of Australia (Ibisworld.com.au. 2019). These mainly consist of
institutions, schools, family-owned or home-based centers and Daycare centers.
The supply of Daycare or Childcare services is elastic in nature. There is a greater
change in the supply of services compared to a smaller change in the price of the services.
This is because there are a large number of service providers present in the market. This
makes the service an elastic one.
Response to 3:
To maintain a healthy work-life among females, childcare services needs to be
subsidized because of the constant increase in prices by the providers. These prices are set
above the fee cap mentioned by the government. This increase in prices is harming the budget

3EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
S
S’
P
P’=P-S
Q Q’
E
E’
Price
Quantity0
Subsidy
of the families. On average, the daily cost of daycare service is about $100, which is grabbing
a majority portion of the daily income of the parents (smh.com.au. 2019). This is reducing the
purchasing power of the families that requires Childcare service. Moreover, a family
categorized under the middle-income group is adversely affected by soaring prices. This
affects the lifestyle and real income of the parents. Thus, to maintain the welfare of the
purchasers the government should introduce subsidy in the system.
Response to 4:
As per the current market scenario of the Childcare services, the prices are higher for
the families to purchase. Thus, there is a need for the authority to subsidize the market.
Figure 1: Subsidy implemented by the government
(Source: Created by Author)
The above figure illustrates the market equilibrium before and after the
implementation of government subsidy in the market for Childcare services. The y-axis
measures the price level and the x-axis calculates the quantity demanded by the families.

4EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
Before the implementation of subsidy, corresponding to the equilibrium E the market price
for daycare services is P and the quantity demanded is Q. This reduces the purchasing power
and welfare of the families. This induces the government to introduce subsidy in the market.
The subsidy reduces the supply to S’ and shifts the equilibrium to E’. This lowers the market
price to P’. Thus, there is an increase in the quantity demanded by the parents to Q’. As a
result, there is an increase in the welfare of the families.
Response to 5:
The maximum subsidy provided by the government of Australia for childcare services
is 85 percent. To be eligible for the 85 percent subsidy a household should lie within the
income range of $0 to $68,163 (Humanservices.gov.au 2019). The percentage decreases by 1
percent for every $3000 increase in income of households. The households with income level
$352,453 or above are not eligible for any kind of subsidy and thus, they are not benefited
from this program.
Response to 6:
The annual cap for child care subsidy is $10,373 per child. This annual cap is provided to
those households within the income range of $188,163 to $352,453 (Humanservices.gov.au
2019). This is given to the households that receive lower subsidy percentages and those who
are not eligible for the subsidy program. The families with income levels less than $188,163
are not provided the annual cap. This is because these households get a subsidy of 50 percent
and more. As a result, there is no extra benefit for these households.
Response to 7:
The Childcare subsidy program formulated by the Australian government indicates a
fair distribution of support among the households. The families with a lower income receive a
higher level of subsidy compared to high-income households. This program aims at

5EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
benefiting middle-class members (Brennan 2016). Moreover, with an increase in income the
subsidy rate declines gradually. This ensures that households are better off.
Response to 8:
As per the article, the new subsidy scheme is protecting the parents against the harsh
pricing structure of the service providers. This has reduced the expenditure of the families. As
a result, parents can purchase the service for their children. The single parents and the
working mothers are highly benefited from the scheme. This program not only has increased
the affordability rates of the parents but also has increased their participation rate in the labor
force. In addition to this, both single parents and working mothers will be able to participate
in the job market (Boston.gov. 2019). Hence, there will be a gradual improvement in the
short run and in the long-run, both the men and female labor force participation will rise.
Response to 9:
Table 1: Calculation for subsidy received by households
Households - Combined income CCB + CCR CCS
AUD 36,000 (8600+7500)=16,200 30,600
AUD 158,163 (7500+0)=7500 86,989.65
AUD 330,000 (7500+0)=7500 79,698.3
Source: Created by Author
The above table specifies that CCB+CCR is the new policy introduced by the
government. Whereas, the CCS is the old subsidy program. The results portrayed that the
earlier program benefits the households more than the current childcare rebate policy.
Compared to low-income households, families with high-income are affected the most.

6EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
Response to 10:
The increasing childcare service cost is a major concern of the government of
Australia (Cook Corr and Breitkreuz 2017). Apart from the subsidy schemes of the Australian
government, they should introduce community-based childcare services. This will reduce the
cost of operations of the services and will reduce the spending of the parents. In addition to
this, the administration should introduce childcare services in the workplace. This will help
working parents to monitor their children. This can be viewed that these policies are set to
benefit working parents. However, these policies will reduce the profit levels of service
providers. Hence, the producers will be worse off (Gong and Breunig 2017). The
recommended policies will increase government expenditure. However, this can reduce the
level of subsidy.
Response to 11:
Table 2: Gantt chart
0-1 1-2 2-3 3-4 5th
Research Activities Day Days Days Days Day
Researching the
Topic
Data collection
Diagram and
Calculation
Analysis and
Recommendation
Final Framework

7EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
Source: Created by Author
References
Boston.gov. 2019. [online] Available at:
https://www.boston.gov/sites/default/files/document-file-01-2019/early_education_and_child
care_report_12.12.2018.pdf [Accessed 9 Oct. 2019].
Brennan, D., 2016. Federalism, childcare and multilevel governance in Australia.
In Federalism, feminism and multilevel governance (pp. 37-50). Routledge.
Cook, K., Corr, L., and Breitkreuz, R., 2017. The framing of Australian childcare policy
problems and their solutions. Critical social policy, 37(1), pp.42-63.
Gong, X. and Breunig, R., 2017. Childcare Assistance: Are Subsidies or Tax Credits
Better?. Fiscal Studies, 38(1), pp.7-48.
Humanservices.gov.au. 2019. Child Care Subsidy - Your income can affect it - Australian
Government Department of Human Services. [online] Available at:
https://www.humanservices.gov.au/individuals/services/centrelink/child-care-subsidy/how-
much-you-can-get/your-income-can-affect-it [Accessed 16 Oct. 2019].
Humanservices.gov.au. 2019. Child Care Subsidy - Your income can affect it - Australian
Government Department of Human Services. [online] Available at:
https://www.humanservices.gov.au/individuals/services/centrelink/child-care-subsidy/how-
much-you-can-get/your-income-can-affect-it [Accessed 16 Oct. 2019].
Ibisworld.com.au. 2019. Child Care Services – Australia Industry Research Reports |
IBISWorld . [online] Available at: https://www.ibisworld.com.au/industry-trends/market-
research-reports/health-care-social-assistance/child-care-services.html [Accessed 9 Oct.
2019].

8EFFECTS OF SUBSIDY ON CHILDCARE SERVICE
smh.com.au. 2019. Ireland, J. Hundreds of childcare centres charging above government's
top subsidy rate. [online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/politics/federal/hundreds-of-childcare-centres-charging-above-
government-s-top-subsidy-rate-20190620-p51zor.html [Accessed 9 Oct. 2019].
Van Robays, I., 2016. Macroeconomic uncertainty and oil price volatility. Oxford Bulletin of
Economics and Statistics, 78(5), pp.671-693.