When it comes to creating jobs, funding ECEC is 20 times more effective than tax cuts

A new report, prepared by Dr Janine Dixon, Senior Research Fellow at Victoria University’s Centre of Policy Studies, compares the cost, employment creation and impact on GDP of increased spending on early childhood education and care (ECEC) and income tax cuts, finding that increasing the ECEC spend is nearly 20 times more effective at creating jobs than cutting taxes.

 

The new  macroeconomic modelling, released earlier this week by the Australia Institute shows that when compared side by side, increased public funding for ECEC is nearly 20 times more effective at creating jobs than a tax cut of the same size.

 

‘A comparison of the economic impacts of income tax cuts and childcare spending’ compares the cost, employment creation and impact on GDP of increased spending on child care and income tax cuts, arriving at the following key findings: 

 

• Almost 450,000 Australians with children under the age of five years 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 ECEC would create around 135,000 additional jobs per year by 2030, a similar expenditure on tax cuts would create less than 10,000 jobs.

 

“While cutting taxes can provide an incentive to work longer hours, it is unlikely that this has much effect for individuals on high incomes as most of them already work full-time,” Dr Dixon said. 

 

Given the low likelihood that high income earners will respond to income tax cuts by increasing their hours of work, tax cuts to high income earners therefore represent “little more than a transfer of funds from the government to high-income households, with limited spillover benefits to participation rates, total hours worked or GDP,” she added.

 

“While the Government has said repeatedly that the best way to repay its record deficits is to grow the economy, the Government is yet to provide any evidence to support its claim that the best way to grow the economy is to spend $300 billion on income tax cuts, most of which go to those on above average income,” Dr Richard Denniss, chief economist at the Australia Institute, added. 

 

“What this modelling shows is that spending money to directly employ people in ECEC and directly helping those people who are currently prevented from working is a much more effective way to create jobs than to give money to people who are already working full time in the hope that they might work even more.” 

 

“It is not just good economics to invest in ECEC, it is common sense.”

 

To read the report in full, please see here.