Will The Liberal Child Care Program Benefit Low Income Parents?

June 6, 2004--On June 3, 2004, Canadian Liberal Party leader Paul Martin announced that if his party was put in power, they would commit $5-billion dollars over 5 years to a national child-care. Details are always difficult to come by in an election, but observers believe that Mr. Martin is interested in creating a national child care program modelled on the Quebec provincial day care system. Under the Quebec system, parents are charged 7 dollar a day to put their child into day care, while the province picks up the rest of the tab.

A $7 a day program translates into a cost of $140 a month per child for childcare for the average 20-day work week. This is a significant savings for most families, as the average Ontario family pays $603 a month per child for daycare. (Source: Globe and Mail). A family with two preschool age children would save $962 a month if this plan was ever put in place.

The Conservative Party, on the other hand, has devoted themselves to saving parents money by reducing tax rates. In 2004, federal tax rates are as follows:

* A Federal Basic Amount (Exemption) of $8,012
* First $35,000 in income - 16% tax rate
* Over $35,000 up to $70,000 - 22% tax rate
* Over $70,000 up to $113,804 - 26% tax rate
* Over $113,804 - 29% tax rate
(Source: Taxtips.ca)

They wish to alter these by introducing a $2000 per child tax credit to families and lower taxes by increasing the tax brackets. Without knowing how much the Conservatives plan on increasing tax brackets, it's hard to make a comparison, but we'll suppose that they plan on increasing the federal basic exemption by $1,500 to $9,512.

Now consider a single mother making $25,012 in taxable income who has one child to put into daycare. Under the current tax regime she would pay no taxes on the first $8,012 of her income, and 16% tax on the remaining $17,000, which works out to $2,720 in taxes paid. Under the Liberal plan, she would only pay $140 a month for child care expenses, so the total amount she would pay in child care expenses and taxes is $2,860.

If instead there was no child care program but the federal basic amount was raised to $9,512 and a $2,000 per child tax credit was given, her tax bill would look quite a bit different. She would pay no taxes on the first $9,812 of her income due to the exemption, and similarly pay no taxes on the next $2,000 of her income due to the child tax credit. That leaves $13,500 in income she would have to pay a 16% tax on, requiring her to pay a $2,160 tax bill. Her child care expenses are now $603 if she is charged the average price, thus her total taxes and child care bill is $2,763, almost $100 less than under the Liberal plan!

If our fictional single parent has two children, the Liberal plan begins to look better. Under the Liberal plan, she would still have a tax bill of $2,720, but she would now pay $280 in child care expenses, for a total child care and tax care bill of $3,000. Under our tax cut scheme, our parent would collect an additional $2,000 child tax credit for the additional child, thus she would be forced to pay 16% of $11,500, for a total of $1,840 in taxes paid. To enroll two children in day care at average prices would cost her $1,206, leaving her a taxes and child care bill of $3,046, less than $50 higher than under the Liberal plan.

While the Liberal child-care plan sounds impressive, it provides little or no savings to even low income Canadian parents with one or two children if it comes at the expense of a program of tax cuts. Tax cuts have been criticized by many as only benefiting the wealthy, but if they are properly targeted they can also as benefit the working poor just as much as additional social programs. Parties of all political stripes can ensure that both Canadians with and without children can pay for the necessities of life by not taking money out of the pockets of those who can least afford it.





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