Photo: RNZ // Angus Dreaver
By Brigitte Morten*
Opinion - The sales pitch of Budget 23 is the expansion of the childcare 20-hour free subsidy to two-year-olds. It looks great on paper. Eligible families could gain up to $133 per week back in their household budget. But a good headline does necessarily mean good news. Scratch the surface and this policy is unlikely to be the relief families are looking for.
The expansion will cost $1.2 billion over four years. It alone is unlikely to be the reason inflationary pressure remains high but, combined with the new spend in other areas, Budget 23 has blown the operational and capital expenditure higher than expected. Saving $133 on a childcare bill but a household continuing to pay higher prices at the supermarket checkout means many families may not get that further ahead.
Combine that with likely push back from the Reserve Bank to counter inflation and the cost of debt, including mortgages, will continue to increase. Last month, Westpac predicted rising interest rates will mean some families will be paying $900 more per fortnight once they come off low fixed rates.
In the Budget, Treasury forecast interest rates are likely to stay higher for longer to manage inflationary pressure. Families expecting the subsidy in March are likely to have been making higher mortgage payments for at least six months before they see the benefit of the subsidy.
A $133 increase looks like chump change.
Treasury plans to issue $120b of New Zealand Government Bonds over the next four years. That is $20b more than forecast in December. The cost of the subsidy is a notable part of the reason for doing so. That debt must be paid back by future generations. So, it equates to a quasi-student loan for two-year-olds.
The March delay to subsidy expansion is politically beneficial for Labour. It makes it difficult for National to oppose it as unnecessary expense in the lead up to the election. They have already recognised additional spend in early childhood is needed and have their own childcare policy - Family Boast. Their tax rebate policy would see all eligible families get up to $75 per week. For many families that will work out a better deal. At least we know now why the government was so uncomfortable when National announced the policy in March - today's childcare plan would have been close to locked in.
Read more on Budget 2023:
- Keep up with RNZ's full coverage of the 2023 Budget
- Budget 2023 at a glance: What you need to know
- Free public transport for children under 12 among climate highlights
- Cost-of-living Budget centres on cheaper childcare
Alongside the expansion of fees free was an increase to the subsidy for childcare by 5.3 percent. But this is unlikely to do much to fix the significant issues in early childhood delivery. The Early Childhood Council states on average at least two centres per week are closing. Many of these in low socio-economic areas, further reducing the access to learning. Some of these will be due to an inability to recover from Covid, the costs of operating are simply too high. The government's pay parity, which makes it more expensive to hire experienced teachers, has also increased the pressure.
Even Education Minister Jan Tinetti seemed to admit defeat on this, stating the increase in subsidy would "reduce the need to raise fees at Kōhanga and kindergarten". An acknowledgment that centres will continue to do it tough.
Excited families hoping for relief in the budget announced on Thursday are likely to be disappointed. March is a long time away and the Budget papers forecast it will be paved with difficulty. A $133 reduction in childcare costs should not be minimised but when you put in in context with the issues facing families, it will hardly make a dent.
*Brigitte Morten is a senior consultant at Franks Ogilvie. She has been a senior ministerial adviser to the Minister of Education in the National-led government, and an adviser and campaign director for Australia's Liberal Party.