Sara and Gareth Jones face a dilemma over childcare costs for baby Bryn and 6-year-old Amelia. Photo / Nick Reed
Sara and Gareth Jones face a dilemma over childcare costs for baby Bryn and 6-year-old Amelia. Photo / Nick Reed
High childcare bills mean returning to the workforce after having a baby can be hardly worth it. Social issues reporter Simon Collins crunches
the numbers.
When nurse Sara Jones' paid parental leave ends eight weeks from now, she and husband Gareth face a serious dilemma.
She needs to go back to work to help pay the living costs of the couple's expanded family, which now includes 8-week-old Bryn as well as Amelia, 6, in their $400-a-week rental home in the West Auckland suburb of Massey.
But if she goes back fulltime, paying for childcare for Bryn plus after-school care for Amelia, and allowing for extra petrol, the family will be hardly any better off than they are on one income.
"I need to work financially because my husband's income is $200 short of our expenses," Mrs Jones says.
"But I simply can't afford to pay for childcare and work. I have to factor in petrol. At the end of the day you start to wonder why you bother."
It's a common predicament. A posting seeking feedback on the Herald Facebook page last week drew hundreds of responses, many from other parents for whom paid work simply isn't worth it.
"The more I earn, the less Working for Families [tax credits] we get and our childcare subsidy is also decreased, therefore I'd be going back to work for diddly squat and also giving up precious time with my children," wrote Danielle Fletcher from Gisborne.
From Taupo, working mother of two Renee Mihaere wrote: "We've [she and her partner] just been given pay rises and have spent the last few days contemplating not taking them as we're now not able to get the childcare subsidy. Basically all of my pay goes towards the girls attending daycare."
South Auckland mother of two Melissa Moe wrote: "I was working part-time during the week and studying fulltime but due to the costs of childcare I had to quit my job during the week and get a part-time weekend job and drop my studies to two days a week in class."
How it works
The problem is worst for families who have children under 3 and earn only just above the cut-off incomes for the Work and Income childcare subsidy, but not enough to afford full childcare costs.
The pain eases when children qualify for 20 hours of supposedly "free" early childhood education from age 3 (although many centres still charge "voluntary" top-ups, plus compulsory fees beyond the 20 hours).
And it eases again when children get free education during school hours from age 5.
Six main elements have a compounding effect:
Childcare costs
Te Rito Maioha Early Childhood NZ says Auckland fees for fulltime care of children under 3 range from $220 to $408 a week.
Child Forum director Dr Sarah Farquhar estimates an average of $320, and Sara Jones faces paying $80 a day.
Hourly fees were last surveyed nationally in 2011, when parents paid averages of $4.86 an hour for children under 2 and $4.41 an hour over 2.
These fees are after allowing for government subsidies paid direct to care providers, which in 2011 covered 80 per cent of an average centre's costs.
Work and Income pays an income-tested subsidy of $4 an hour for one-child families earning under $1200 a week, $2.79 an hour at incomes up to $1300 and $1.55 an hour up to $1400. The bottom rate will go up next April to $5 an hour for about 18,000 working families earning below $800 a week (likely to be mainly sole parents).
The income limits are higher with more children but cut out completely at $1400 a week with one child, $1600 with two, and $1800 with three or more children. Fulltime work would push the total of Sara and Gareth Jones' incomes over the limit.
In 2012 only 37,237 children received the subsidy, less than a fifth of the 196,500 children enrolled in preschool education and care.
Family tax credits
Low-income working families can get up to $152 a week from family tax credits with one child, $217 with two children and more with larger families. But the credits are reduced by 21.25c for every dollar the family earn above $700 a week before tax.
The Joneses get $100 a week in family tax credits as long as Mr Jones is the sole income-earner, but if Mrs Jones works fulltime too they will get nothing.
Housing subsidies
Low-income families can also get an accommodation supplement of up to $165 a week in West and South Auckland, Tauranga, Wellington, Nelson and Queenstown. The limit is more in central and north Auckland, and less elsewhere.
But this is reduced by 25c for every dollar the family earn above $581 a week for a couple with children, cutting out at $1241 a week. Mr Jones' income as a welder puts the couple just over the limit even on one income, but almost 290,000 households received the subsidy in June and would lose most or all of it if both parents work.
Taxes
Most parents with young children pay income tax and ACC levies at either 18.76c in the dollar up to $923 a week ($48,000) or 31.26c up to $1346 ($70,000).
Those with student loans, such as Mrs Jones, also pay an extra 12c out of every dollar earned above $367 a week.
Petrol etc
Most jobs also cost money for petrol or public transport, lunches and sometimes clothing. Petrol alone would cost Mrs Jones an extra $80 a week to drive from Massey to work in Newmarket via Albany, where the family used to live and Amelia still attends school. After-school care for Amelia would add a further $15 a day, or $75 a week.
Adding it all up, even if Mrs Jones could gross $50,000 a year from fulltime nursing, the Herald estimates her family would end up less than $70 a week better off - and, she says, "I would lose time with my tiny, gorgeous baby who is only 2 months old".
The net effect is the family will look for other options, such as working only part-time and asking Mrs Jones' mother to look after the baby and collect Amelia from school one or two days a week. But that's not easy either because her mother lives in Titirangi. "So we have some really hard decisions to make," Mrs Jones says. "We haven't really come up with a solution just yet."
How we compare
A 2011 OECD report found that New Zealand's childcare subsidies were the most tightly targeted towards low-income families of all 30 developed nations. We are also unusual in charging income tax from the first dollar earned, so removal of the other subsidies as income rises can quickly pile up to make work hardly worth doing.
In 2012 the OECD found that a Kiwi couple with two children aged 2 and 3 where one parent earned the average wage (currently $1097 a week, or $57,058 a year) and the other earned two-thirds of the average ($731 a week) would lose 97.9c out of every extra dollar from the second earner's wage via a combination of childcare costs, reduced tax credits and subsidies, and higher taxes. (This excludes petrol and other costs).
This was the worst outcome for any of the 34 countries listed, and compared with an OECD average of 57c in the dollar. Losses were lower for Kiwi couples on lower incomes, only 75c to 76c out of every extra dollar earned, but these were still much worse than the OECD averages.
Losses for sole-parents going back to work were also above the OECD averages in New Zealand, at 94c out of every dollar for a sole parent earning half the average wage and 83c for one earning two-thirds of the average.
What can be done?
Historically, the reason we have such tightly targeted subsidies is that we have not been willing to pay higher taxes. Making the system less targeted would cost money.
Early Childhood Council chief executive Peter Reynolds advocates a radical change to fund measurable age-appropriate educational outcomes for children.
"You have all the wrong incentives in place at the moment and that encourages bureaucracy and disincentivises centres for trying to achieve decent quality for their kids," he says.
Council of Trade Unions social policy analyst Eileen Brown suggests increasing the hours and/or lowering the age for the highly subsidised "20 hours ECE" programme, and increasing paid parental leave beyond the current 16 weeks (18 weeks from next April).
Dr Farquhar of Child Forum suggests raising the income limits for the Work and Income childcare subsidy and providing publicly owned kindergartens.
Steve Thomas, a former Maxim Institute researcher who has developed a tax and welfare calculator, suggests easing the penalties on working for middle-income parents by cutting income tax rates and raising more revenue instead from higher GST or a land tax.
But Sue Wright of the Brainwave Trust says the scientific literature points to potential risks for children under 3 attending childcare away from their parents.
"This is the key time when a huge amount of brain development occurs as each child learns about the world, establishes their way of relating to others, learns how to manage stress and develops self-regulation," she says.
"That's why an attuned parent who really knows and loves their child is the very best person to provide that environment for their child."
Mrs Jones would like to be able to stay home with her baby for at least his first year.
"I'd like it to be a choice," she says. "I'd much rather be able to spend at least the first year at home with the baby. It's not fair on them being shoved out the door just because we can't afford to feed them."
Childcare puts family in red
A Mangere mother who went back to work after her second baby made her family $63 a week worse off than if she had stayed at home.
Dominica and Denver Taani with baby Amanda. Photo / Nick Reed
Her case, which came to light after the Herald asked for feedback on its Facebook page last week from parents facing high childcare costs, dramatises the perverse way our tax and subsidy systems combine to penalise parents going back to work.
Dominica Taani, 25, returned to her job in a freight company within a week after having each of her children now aged 3, 2 and 11 months.
Her husband, storeman Denver Taani, also 25, earns $650 a week after tax, leaving little left over after paying $460 rent for the family's three-bedroom house.
So Mrs Taani works too, making $800 a week after tax.
Ironically, their new baby Amanda now means that the second job is worth it, because their combined gross income is now below the $1800 cut-off limit for the Work and Income childcare subsidy with three children. Also, their oldest child has turned 3 and gets 20 hours of near-free care. Their childcare costs have come down to $270 a week.
But when they had only two children, their joint income was above the $1600 two-child subsidy limit, and both children were under 3, so they paid full childcare costs of $484 a week.
On top of that, Mrs Taani's income pushed them over the limits for both family tax credits and accommodation supplement. If she had stayed home, they would have been entitled to $200 a week in tax credits and $139 for housing in the smaller house they then rented at $380 a week.
And her job, and the need to drop the children at their childcare centre, added perhaps $40 a week to the family's weekly petrol bill which is now $120.
The net effect was $863 a week in higher costs - $63 more than Mrs Taani's $800 net income.
The family lives frugally with just one car. Luckily both parents work in the airport area and they use a local airport childcare provider.
"We wake at 7am. Our children are at daycare by 7.30am, I drop my husband at work at 7.45am and I start at 8am," Mrs Taani says.
"I finish at 4.30pm, pick my husband up at 5pm and the children at 5.30pm. When I took the job I made sure there was no overtime. When he has overtime he takes it and gets a lift home with someone from work."
Despite the pain of childcare costs until recently, the family expects the situation to ease as the younger children reach age 3 and eventually start school.
