The federal government could gain a $1bn windfall if it invests in childcare, even without the money from a 1.5% levy on big business originally earmarked to fund the now defunct paid parental leave scheme (PPL).
The prime minister, Tony Abbott, announced he would scrap the much-criticised scheme on Monday, saying that the government would instead divert funds to childcare. He has indicated that the government will take on the recommendations of a Productivity Commission report into childcare.
But Abbott refused to confirm that he would scrap the levy, instead saying that the revenue for PPL would be used to fund the childcare changes.
According to a draft report released by the Productivity Commission in July, the government spends $7bn annually on childcare. Its proposed changes to the sector include means-testing the childcare rebate, paying subsidies directly to providers and expanding payments to include nannies.
It estimates those changes could cost $8bn a year, $1bn more than is being spent on childcare.
Modelling done by the parliamentary budget office before the last federal election put the cost of the PPL at just over $5bn a year.
The Coalition costed it at much less than that, and set aside $2bn for the policy in the 2014-15 budget year.
Scrapping that $2bn policy but still taking on all the recommendations of the Productivity Commission would boost government coffers by $1bn.
Keeping the 1.5% levy would mean an even greater windfall for the government.
David Richardson, from the Australia Institute, told Guardian Australia the government could expect about $4bn a year from the business levy.
He thinks it would be highly unlikely that the government would axe the levy when it was facing budgetary pressures from a number of revenue measures stuck in the Senate.
“They’re going to want to make the books look good, so they’re going to want to find whatever savings they can,” Richardson said.
He said investing in childcare could create a booming industry that “could pay for itself” in income tax and jobs growth.
The Grattan institute thinktank also welcomes the move. “We’re delighted to see [the government] put scarce resources into childcare rather than PPL,” its chief executive, John Daly, said.
He said childcare would boost female workplace participation more than PPL. “You’ll get more bang for your buck,” he said.
But Ben Phillips, researcher with the national centre for social and economic modelling (Natsem), argues that the changes flagged in the Productivity Commission draft report will only slightly boost female workplace participation.
“It’s not going to be a revolutionary change for Australia. It will be marginal at best,” Phillips said.
He warns that increasing subsidies given to families and providing rebates directly to providers will both cause the cost of childcare to skyrocket: “That could be a recipe for increasing pricing.”
