Ideas

August 6, 2020

Child Care Subsidy Redesign and What it Means for Albertans

As we continue to recover from the COVID-19-induced economic shutdown, access to, and affordability of, child care has become a front-and-centre issue facing many Albertans. 

This affordability concern has been a long-standing public policy issue across Canada. High child care costs are a significant barrier to work, especially for lower-income Canadians. This issue is particularly acute for parents—frequently mothers—who are the sole or primary caregivers. 

It is precisely for this reason that provincial governments, including Alberta, provide subsidies to parents. Making child care more affordable allows more people to participate in the economy and build careers and futures for themselves.  

In that context, the provincial government recently made two key announcements. First, it announced a $45 million transfer from the federal government—$29 million of which will be used to redesign child care subsidies for low- to medium-income families. At the same time, it confirmed that, as of the end of March 2021, it would be phasing out the pilot $25-a-day child care program put in place by the previous government. 

Albertans are understandably eager to know what this means for them and for access to affordable child care. Would those previously employed be able to return to work? Would their subsidy increase or decrease? And if it increased, would it be enough that they could finally afford to work?  

We explore these questions below.

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How much does this federal transfer increase child care support in Alberta?

The short answer that it doesn’t, but it doesn’t decrease it either. What changed is how it’s allocated. In 2017, the federal government began a three-year, $1.2 billion program to support child care across the country. Funds were distributed through Early Learning and Child Care (ELCC) bilateral agreements signed with each province. Under those agreements, provinces committed to spending the money on a range of child care and early learning initiatives according to the priorities of each.

Alberta’s share of that $1.2 billion was about $135 million, or $45 million per year, ending last year. A little more than half the money was spent on expanding the $25-a-day daycare pilot program.

The recently announced $45 million transfer is simply a continuation of ELCC payments, only under a new federal-provincial agreement that reflects the current provincial government’s priorities, which differ from those of the previous government.

How the Old System Determined Your Subsidy

It was complicated. The most important aspect of the previous system of child care supports was that there were two programs running in parallel: the child care subsidy and the $25-a-day pilot daycare program.

Let’s start with the subsidy: under the old system, a family’s eligibility and subsidy amount were determined by weighing a multitude of factors including marriage status, gross family income, the number of children, the age of children, the hours of daycare needed, and the type of program. Different factors taken together could disqualify you: for instance, at some given income level, you might receive a subsidy if you have two children but not if you only have one. The highest income threshold for a partial subsidy was $116,500 for a two-parent family with four infants.

Because of a plethora of variables and rules, there was no simple reference table available to estimate your subsidy amount in any given situation. Instead, you would learn only after completing the application if you were, in fact, eligible and for how much.

Basically, it worked like this: applicants would enter their information online or over the phone when applying, and a computer-calculated formula would subsequently determine if they qualified for a subsidy and, if so, what the amount of that subsidy was.

What we do know is that the subsidy maxed out at $546 per month per family. For families who qualified for the maximum amount, the subsidy covered about half of the cost of child care for one child, assuming an average cost of $1000/month (though costs vary widely across the province). The lowest amount you could therefore expect to pay for a single child under four years of age would have been around $450 per month, or about $22 per day.

One caveat is if a family was also a part of the $25-a-day pilot program. Participating in the pilot program did not affect eligibility for the subsidy. So, a family in the pilot program could begin by paying about $450 or $500/month in daycare costs, but their subsidy would be large enough that those costs could effectively fall to zero. Roughly 7,500 children were enrolled in the $25-a-day program and about 35% of those received the subsidy as well.

There is also some contradicting information about whether the pilot program had an income cut-off for eligibility. Generally, however, it operated on a first-come first-served basis, which leads to one of its main criticisms. Since the pilot was not means-tested, some relatively well-off families had access to much cheaper child care than their less wealthy neighbours. This was likely not an issue at the time the pilot was being developed simply because the previous government’s long-term plan was to make $25-a-day child care universal across the province.

New Subsidy Redesign

The new program introduced by the current government cuts back on the complexities of the previous one by paring down the factors used to determine eligibility and subsidy amount. A child’s subsidy rate is now exclusively determined by total family income, the age of the child, the type of program that the child goes to, and the number of hours the child attends in a month.

One benefit of this new model is families should know if they are eligible and roughly how much they can expect going into the application process. The general amounts are in the table below. Alternatively, this can be determined using the government’s online calculator. In addition to the ability to verify accuracy, this also allows families to see how changes in their situation may change their expected subsidy, allowing for better financial planning and budgeting.

Source: Government of Alberta

Is It Better?

It really depends. Because of the complexity of the previous system, individual situations net out differently. But it does appear that most families will be better off with the new subsidy model.

Based on the increase in the maximum subsidy amount (for pre-schoolers: $546/month rising to $644/month), many families will be better off and some much better off than before. Families in income groups below $65k will see a higher subsidy and will, therefore, end up paying less for child care, with the biggest savings for the poorest families. Specifically, the provincial government has estimated that it will increase subsidies for 28,000 children while 16,000 families are expected to pay an average of $25 per day. It is unclear, however, how many families were previously paying $25 per day or less—whether through the pilot program, the value of their subsidy, or both.

For individuals and families earning $65,000 – $74,999, it’s less clear. Whether they end up with a larger subsidy could depend on some of those other factors of the old model (marital status, number of children, etc.) and how close to the maximum subsidy amount they had been previously.  

Some, however, will be worse off. Families most at risk of being in a worse position are those who were a part of the $25-a-day program and received the maximum subsidy of $546. Assuming child care costs of $1,000 per month, that relatively small number of lower-income families could see their payments change from $1/day or less to about $13/day once the pilot program ends next March. Wealthier families that were also part of the $25-a-day pilot would also be worse off, although with milder affordability concerns.  

Source: Business Council of Alberta

The biggest concern for those made worse off is if their child care costs rise enough in the new model that it is no longer feasible or no longer makes financial sense to work, with the inverse being true for those better off. Individuals leaving the workforce often experience major consequences for their lifetime earnings—according to one study, an income loss of 3-9% per year of absence for 3-5 years. Moreover, child care costs are more likely to affect women, which would have an impact on the entire labour market; evidence suggests that higher gender-based labour force participation raises the earnings of all Albertans.

What else?

Over the next few weeks and months, we will be assessing not just affordability but how the new model impacts the overall capacity and quality of child care as well as safety measures.

How this all plays out will be a crucial determinant of Alberta’s ability to get back on its feet and, we hope, its ability to be even stronger than before. Child care access is more than a Zoom call inconvenience; it has implications for the welfare and livelihood of all Albertans.  

Note: We did not have direct access to data for the $25-a-day program or certain details of the old and new subsidy models and therefore relied upon the reports by the government and journalists as well as conversations with experts for more information where possible. Where information seemed unclear or contradictory, we express uncertainty.

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