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Children first victims of National's spending cuts

6 July 2005

Children first victims of National's spending cuts

National's childcare policy is a spending cut that will disadvantage 86,000 children and their parents, Social Development and Employment Minister Steve Maharey says.

Mr Maharey said that National would pay for its policy by cutting the 20 hours a week free early childhood education offered by the government and that 86,000 children would be the losers as a result.

"This policy sets the scene for what has been widely predicted as National Party tax cuts, leading to cuts in spending to pay for the policy.

"The policy has been poorly worked out, and rushed out while Don Brash was at a childcare centre, to cover the growing confusion over National Party policy

"It also shows how confused the National Party is about tax cuts because, clearly, this is not what any hard working New Zealand family expected. They were told tax cuts would deliver a substantial amount of money into their hands for them to choose what they spent it on.

"Instead the first cut is one where National has decided on how people should spend their money."

"The government's policy of free early childhood education is worth around $4,680 a year or $90 a week and will be available to all parents by 2007. In contrast National's policy would be worth around $1,650 a year or $31 a week and only be available to sole parents or families where both parents are working.

Steve Maharey said that the government had already made dramatic advances on the child care and early childhood education front, including:

Funding for Early Childhood Education will increase by $152m over the next 4 years – including free provision for 3 and 4 yr olds from 2007 Childcare Assistance changes in the Budget and Working for Families mean 40% more children receive subsidised care than same time last year, with further increases in October this year By October 2006 70 percent of all families with children will be eligible for extra assistance towards the costs of childcare.

"This strategy is rolling out and we intend to do more in the future, but our approach is clear - to advantage all children and families."



Sarah and Mark

Sarah and Mark have one three-year-old child. They both work full-time and have a joint family income of $80,000 before tax. They are not eligible for a childcare subsidy and they spend about $180 a week on childcare with an annual cost of $8820.

Assumption – this equates to 40 hours a week at $4.50 an hour.

Under National Sarah and Mark are eligible for a $1650 tax credit. Their net childcare costs are $7,170.
Under Labour Sarah and Mark are eligible for 20 hours free childcare so they pay $4.50 an hour for the remaining 20 hours a week for a total cost of $4,410 a year.

Sarah and Mark are $2,760 better off with Labour.

Brad and Jenny

Brad and Jenny have two preschoolers and live in Auckland. Brad works full-time while Jenny works part-time. They have a joint family income of $60,000 before tax. They are not eligible for a childcare subsidy. Both of their preschoolers currently attend a local education and care centre at a cost of $72 each a week.

Brad and Jenny’s total childcare bill is $3744 per child per year.

Assumption – this equates to 16 hours a week per child at $4.50 an hour.

Assumption – Brad and Jenny would take up community-based early childhood education to take advantage of the 20 free hours policy
Under National Brad and Jenny are eligible for a $1236 tax credit for the childcare costs of each of their children.

They are eligible for a total tax credit of $2472. Their net childcare costs are $5,016.
Under Labour Brad and Jenny are eligible for 20 hours free childcare per child so they pay nothing for childcare.
Brad and Jenny are $5,016 better off with Labour.


Sandra is a sole parent with one preschooler. She works full-time as a nurse and earns $45,000 a year before tax. Sandra’s shift work means it is necessary for her to use both a crèche and a home-based carer to look after her child. Sandra is eligible for a childcare subsidy when her child is at the creche. Her total out of pocket childcare expenses are $98 a week, meaning she spends $5138 a year on childcare.

Under National Sandra is eligible for a $1,650 tax credit. Her net childcare costs are $3,446.

Under Labour Sandra might be able to some of her expenses from the crèche by taking up community-based early childhood education to take advantage of the 20 free hours policy. But she will also be eligible for an (abated) In Work Payment through Working for Families which will means she is $41 a week, or $2,134 a year, better off.
Sandra is at the very least $484 better off with Labour.


Background Information: Childcare/Early Childhood Education (ECE)

Government currently either directly funds or assists with the costs of childcare via three main mechanisms as follows:

Childcare assistance (CCA)

Eligibility and rates - Childcare assistance is targeted assistance to low and middle income families delivered by Work and Income. CCA is a flat rate payment, made at three different rates depending on family income and number of children.

A family with an income of:

- Under $40,040 for a one child family, $49,400 for 2 children, or $57,720 for 3+ children, is eligible for the maximum subsidy rate (rate 1)
- Under $44,200 for a one child family, $54,080 for 2 children, or $63,440 for 3+ children, is eligible for the middle subsidy rate
- Under $48,360 for a one child family, $58,760 for 2 children, or $69,160 for 3+ children, is eligible for the lowest subsidy rate.

The current hourly rates (for a maximum of 50 hours per week) for a child are:

- Rate 1: $2.91 (weekly maximum of $145.50)
- Rate 2: $2.03 (weekly maximum of $101.50)
- Rate 3: $1.13 (weekly maximum of $56.50)

Working for Families and Budget 2005 increases

The income thresholds and rates above include the first tranche of WFF increases implemented last year. From 4 October 2004, rates were increased by 10% and thresholds were also increased significantly. At the same time, rates for Out of School Care were increased to the level of the Childcare subsidy rates.

From 3 October 2005, rates will be increased by a further 10%. These changes were estimated to cost $31.03 million in 2005/06.

As at 2 June 2005, there were 36,162 children receiving CCA. This is an increase of 10,210 more children (39%) in subsidised childcare when compared to the same time last year. Of the families receiving childcare assistance on 2 June 2005, 22.6% were in receipt of assistance due to the raised income thresholds resulting from WFF.

Income thresholds are set to be raised again in October 2006, to a level where around 70% of all families with children could potentially qualify for assistance.

Ministry of Education direct funding of Early Childhood Education (ECE) providers.

This involves subsidising ECE services for children under six years of age from licensed and chartered ECE services. Ministry of Education funding for providers is dependent on the type of service, the number of registered teachers, the age of the child and whether or not the service meets additional quality requirements. The total ECE spend in 05/06 is estimated at $483.617 million.

The hourly rates per child range from $1.21 for a parent led licence exempt service to $8.43 for a child under two years of age in a teacher-led service with a 100% of staff who are registered teachers.

Funding is paid directly to the provider to a maximum of 30 hours per week per child.

20 Hours of Free Early Childhood Education

From 1 July 2007, all 3 and 4 year old children will be able to attend
community-based, teacher-led early childhood education services at no cost
for up to 20 hours per week. This policy will increase participation in
quality early childhood education and significantly lowers the cost to

The policy also sends a signal of the number of hours children should be
participating to achieve good outcomes. Research shows that increasing
children's participation in quality early childhood education leads to
improved learning outcomes later in life. It also helps to free up parents
for more hours of work, education and training.

Funding for free early childhood education will also decrease services'
reliance on fee income for operating costs.

Childcare tax rebate

A rebate worth 33% of your childcare expense (up to $940 per annum) is available. The maximum annual value of the rebate is $310.

Our childcare rebate is accounted for alongside the Housekeeper rebate, and can not be separated from it. In 2004, spending on the childcare and housekeeper rebates combined amounted to $13.7 million, and were paid to 53,000 people.


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