Chapter 9
Child Care
9.1 There are two aspects of the tax reform proposals that will impact
on child care: first, changes to the payment system of child care assistance
received by families; and secondly, the impact of the introduction of
goods and services tax on the providers of child care.
Child Care Benefit
9.2 The Government proposes to merge the two forms of assistance available
(Childcare Assistance and the Child Care Cash Rebate) into one benefit
– the Child Care Benefit (CCB). The Child Care Benefit will provide
for formal care:
- a maximum rate of assistance that will taper down to a minimum rate
based on the hours of care charged by a child care service for one child;
- a single income test, with a family income threshold of $28,200 a
year; the rate will be reduced for income over the threshold by:
- 10 per cent for one child in care;
- 15 per cent and (above $66,000) 25 per cent for 2 children in
care; and
- 15 per cent and (above $66,000) 35 per cent for 3 or more children
in care;
- the income test will not apply for incomes above $78,400 (one child
in care). This will, in effect, maintain entitlements to assistance
(equivalent to that available under the Child Care Cash Rebate [1]
at the rate of 20 per cent or $20.10 for one child for 50 hours of care
per week) for higher income families. [2]
9.3 The Departments of the Treasury, and Family and Community Services
(DFaCS) noted that the new arrangements will provide an `increase of $7.50
in the weekly level of maximum assistance for a family paying the average
fee for 50 hours of care per week for one child in a long day care centre
(over and above the maximum level of assistance at 1 July 2000)'. The
exact amount of assistance to be received by families `will depend on
a number of factors, such as indexation between now and the implementation
date of 1 July 2000'. [3]
9.4 Families using informal care for work-related purposes will also
receive CCB. The maximum level of assistance is projected to be $20.10
a week per child in care (for 50 hours of care).
9.5 The Brotherhood of St Laurence welcomed the simplification of financing
of child care but suggested that it could go further. The Brotherhood
noted that `while there is a case for keeping an element of subsidy directed
at informal care (the Childcare Rebate), its effectiveness really remains
unknown, and the money might be better spent on increasing Childcare Assistance'.
The Brotherhood also welcomed the lower withdrawal rate of the CCB. However,
it suggested that there were other measures that would improve affordability
of child care and that `the net increase of $7.50 per week in maximum
assistance for one child in the year 2000 will not do enough to offset
the decline in affordability for child care'. [4]
Benefits for Out of School Hours Care
In relation to the expected increase of $7.50 per week, NOSHSA pointed
out that in the out of school hours care (OSHC) sector as most school-aged
children use services for a maximum of 25 hours per week (if they attend
full-time before and after school sessions) therefore `this increased
benefit is effectively halved to $3.50 per week or 0.14c an hour'. NOSHSA
went on to state:
NOSHSA believes this amount will not be adequate to address the price
increases that will be associated with [the] impact of administering the
tax input credit system. Nor will it address the issues of affordability
for families facing a myriad of price increases.
Source: Submission No.1378, p.10, NOSHSA.
9.6 NOSHSA acknowledged the improved taper effect for families with 2
or 3 children but noted that this proposal does not address one of the
inequities in the Childcare Assistance system: those families with children
in more than one type of child care are treated differently from those
families with children in one service. NOSHSA concluded `affordability
for families would be improved if families could access the Childcare
Benefit across service types'. [5]
9.7 The Australian Confederation of Child Care (ACCC) questioned the
basis for the access to CCB of those using home-based child care. The
Confederation stated:
High quality childcare is `GST-free' partly because of the educational
and developmental programs delivered by appropriately trained staff.
Its seems strange that the `GST-free' status was extended to forms
of childcare which do not provide those developmental programs
or services. In doing so, the Government may have missed an opportunity
to help parents understand what high quality childcare supplies, and
how it differs from home-based childcare services. [6]
9.8 A further matter raised with the Committee was the proposal that
assistance under the CCB would be paid in arrears to child care providers
rather than in advance as is the case at present for Childcare Assistance.
Witnesses suggested that this will impact adversely on providers' cash
flow. Providers also expressed concern that Childcare Assistance will,
in the future, be paid to parents rather than to services. Again it was
suggested that this will have an adverse impact on providers' cash flow
and may lead to an increase in bad debts. The ACCC suggested that this
could occur at the same time (1 July 2000) as the introduction of the
GST: `the combined effect of the GST inputs and the changes made to how
child care assistance is paid could be quite deleterious'. [7]
9.9 In response to questions on this matter, DFaCS stated that:
We are undertaking a very large scale consultancy at the moment,
looking at the delivery of child-care payments and the most effective
way of delivering those payments. That consultancy is due to report
at the end of February, and we will be assessing its conclusions before
we make a final decision in terms of the child-care benefit. We are
consulting widely with the peak organisations in child care –
I think we are aware of all of them – service providers directly
and families directly, as well as Centrelink, the ATO, the Health
Insurance Commission and state governments; it is a very wide consultancy.
…the tax package itself is not quite as explicit in terms of
the child-care benefit [as the Family Tax Initiative]. Indeed, the
government is aware of this consultancy. It is in relation to a former
cabinet decision that has been put on hold at the moment, and that
was to pay child care in arrears. [8]
GST on child care services
9.10 Under the Government's proposals, child care provided at a recognised
facility will be GST-free. Recognised facilities are those that receive
government funding or where parents qualify for a Government child care
payment will be GST-free. Recognised facilities include long day care
centres, before and after school care, family day care, occasional care,
vacation care and child care facilities at fitness clubs and registered
clubs. The Government stated that the basis for the exemption is that
child care often includes an educational component. [9]
9.11 Child care includes the provision of all the goods and services
that are directly related to the child care. For example, the supply of
food, electricity, bed linen and nappy wash services are covered by the
exemption.
9.12 Child care provided by baby sitters, play centres, playgroups, holiday
camps, sporting and craft programs will be subject to tax. However, DFaCS
noted that as many of these providers will be below the small business
threshold ($50,000 for business and $100,000 per year for a non-profit
organisation) the GST will not be applied. [10]
Organisations that choose not to register will be input-taxed, ie they
will not be able to claim back the GST they have paid on their costs.
These groups will face two options, and both are difficult. They can either
charge customers the GST, and cope with the administrative and cash flow
problems; or they can opt out of the system but not be able to claim the
GST on their inputs. Both scenarios involve the likelihood of increased
prices for parents.
Potential for cost increases
9.13 The Department suggested that as a result of the proposed tax reform:
It is most unlikely that the cost of most childcare will rise. In
fact, lower industry costs could enable the cost of childcare to fall
marginally. The lower industry costs arise because of the removal
under the proposed GST of the current systemic costs (for example,
although exempt from sales tax, child care centres may currently incur
costs from the services of a provider who cannot have an exemption
from sales tax). [11]
9.14 It was noted by some witnesses that being GST-free carried the implication
that the effect on child care service will be neutral or non-existent.
However, the notion that the GST would not impact detrimentally on child
care services was disputed by witnesses. There was widespread concern
that the costs of child care will rise. While it was acknowledged that
child care is to be GST-free, reference was made to potential adverse
effects of the tax reform on child care services in relation to costs
of service delivery, cash flow impact and the compliance costs associated
with the new system. [12]
9.15 It was pointed out that at the present time child care services
do not pay Wholesale Sales Tax (WST) on many items essential to the running
of a child care centre. Such items include food, nappies, books, cots,
protective clothing, cleaning services, general buildings and playground
maintenance. Centre managers do not have to record or in any other way
administer this system. The wholesaler deducts the WST from the prices
charged to child care centres, and then claims the same amount back from
the Government.
9.16 Under the proposed tax reform, child care services will have to
pay GST on goods and services at the time of purchase on the retail price
and then claim back input tax credits from the Australian Taxation Office
(ATO). [13] Centre managers will have to record
items, process the paperwork and make the claim to the ATO.
9.17 It was conceded by some witnesses that not all the goods and services
will increase by exactly 10 per cent. However, it was emphasised that
the bulk of the goods and services used by child care providers do not
at present attract WST. Food was the one item most often used to illustrate
this point. At present food, particularly fresh food, is not taxed. Long
day care centres provide a range of meals, from breakfast to dinner. As
a result, food is generally the second most expensive item of expenditure
for child care centres after wages. The adverse impact on service budgets
of even a small increase in food costs may be substantial.
9.18 Witnesses pointed out that those increased costs will need to be
carried by child care providers until centres receive GST returns on the
inputs from the ATO. [14] They argued that
providers may experience problems with cash flow if they have to wait
three months for a refund from the ATO and do not have the financial means
to carry this extra cost during that period. A study conducted on behalf
of the National Children's Services Forum estimated the additional cash
required per month for community-based Family Day Care (FDC) at $964,
private long day care centre at $1,268 and OSHC provider at $43. [15]
It was noted that there is an option for refunds on a monthly basis. However,
providers accessing this option would also face an increased administrative
burden of making a claim every month. Therefore they may incur additional
costs.
9.19 Arguments concerning possible adverse cash flow effects on entities
supplying largely GST-free supplies were considered by the Vos Committee.
It concluded that:
Several submissions noted that the GST will have an adverse cash-flow
effect on entities supplying largely GST-free supplies. That is, entities
that will usually be in a position of claiming GST refunds, will first
of all have to make the GST-inclusive purchase and therefore required
cash up front. The Committee considers that cash flow problems will
be minimal, providing the Government ensures refunds are paid promptly.
[16]
9.20 Community Child Care Co-operative argued that such an approach to
cash flow problems of GST-free child care services failed to recognise
the unique problems of the industry, in particular that many services
were facing uncertain financial futures in the wake of recent changes
within the industry. Many community-owned services are already operating
on break-even budgets or, in a great number of cases, running at a deficit.
The ramifications for both the budgetary status and financial liquidity
of services of the proposed tax reforms were seen as significant.
Non-viability of child care centres
The Community Child Care Co-operative stated:
For many services, particularly those community based services that
have been placed in extreme financial hardship as a result of having
their operational subsidies removed, this could lead to further financial
difficulties, if not render many of these services non-viable.
Source: Submission No.342, p.4, Community Child Care Co-operative
Ltd.
The Australian Confederation of Child Care stated:
Many centres in Australia are currently on the knife edge of viability
and if there were to be increased costs of compliance with the GST and
associated things, it could send a lot of those centres to the wall.
They are just beating off the wolves, as it were, at the moment with
all the increased regulation we had with state regulations and accreditation,
as well as perceptions in the community that costs have increased because
of the removal of the operational subsidies. They have had a double
impact on child care centres already and we have just gone through probably
our toughest 12 months since the introduction of the child care assistance
provisions in 1991.
Source: Committee Hansard, 5.2.99, p.440, ACCC.
9.21 The operator of South Lake Child Care Centre went on to note:
9.22 In order to maintain viability, it was suggested that services will
have to generate extra income in the first place to pay the increased
charges. One witness estimated that an extra 12 per cent income would
be required to do this. If centres could not afford to absorb the extra
costs themselves, parents would face a fee rise of up to $20 per week.
[18] The Australian Liquor Hospitality and
Miscellaneous Workers' Union (LHMU) noted that parents who rely on child
care services are some who are the least able to afford to pay for increases
in its provision. [19]
Those least able to pay will face increases
The LHMU stated:
If you add the fact that there will be fee increases to the likely
impact on low income workers as consumers of services who pay a 10 per
cent GST and are unlikely to be sufficiently compensated by the tax
cuts, you can envisage a situation where parents will be unable to afford
to leave their children in care. It will be a continuation of what we
have seen so far where either the centre closes or staff are laid off
or, more likely, staff hours are reduced and services available to child-care
centres – in the form of excursions, nappies, suncream lotions
and hats and things – just will not be available.
Source: Committee Hansard, 23.2.99, p.858.
9.23 The LHMU also noted that the cost of activities that child care
use as part of their developmental programs such as puppet shows, theatre
groups and story tellers will increase with the introduction of the GST.
Parents will face fee rises or centres will have to absorb the cost increases.
The LHMU stated that `the effect of this is likely to be even more pronounced
for after school and vacation care where programs include a much higher
proportion of activities and excursions'. [20]
9.24 In relation to compliance costs, witnesses pointed to the added
administrative burden that would be faced by most providers after the
GST is introduced. There was disagreement during the Committee's hearings
as to the level of substantiation and record keeping that would be required
for claims of input tax credits. Most witnesses anticipated that the ATO
would require extensive verification of expenditure through receipts and
invoices. [21] It was also noted that many
items purchased are small items, particularly in FDC and OSHC services,
eg milk, other food items, small supermarket items usually used for household
purposes such as cleaning products. Tax invoices will not usually be provided
for these small items. [22] However, to claim
an input tax credit sufficient records must be retained to substantiate
them. According to the GST Bill Explanatory Memorandum there should be
a record of:
- what was purchased;
- from whom it was purchased;
- when it was purchased; and
- the tax inclusive valuation of the supply, that is, the consideration
for the supply. [23]
9.25 Providers also anticipated that they will incur added costs due
to increased training requirements. Staff will also need to allocate a
greater amount of time to attend the administrative and financial record
keeping. The LHMU stated that the increased administrative burden will
`place additional stress and responsibilities onto a workforce that is
already underpaid and overworked'. [24] Compliance
costs may also increase because of the need for new computing systems
and equipment.
9.26 The ACCC suggested that, in order to assist child care services
to maintain viability and affordability, the Government incorporate any
compliance cost increases into the formula used to index Childcare Assistance
payments to parents.
9.27 Of particular concern to community-based services was their reliance
on part-time or voluntary treasurers and accountants. Treasurers will
required training to cope with the new tax arrangements. Centres, which
are now managed on a voluntary basis, may need to engage professional
accounting services if committees of management are unable or unwilling
to undertake the administration required by the change to the GST. This
will be an added cost burden. [25]
9.28 Compliance costs were also highlighted by those within the school-aged
care sector. It was noted that both outside school hours care and vacation
care are often run on `shoe string' budgets. Services have to cope with
an extremely high level of irregular and casual attendance. This sector
has also had to cope with the recent abolition of operational subsidies
and block grants and the move to the Childcare Assistance system. Many
of these services are run by voluntary committees of management which
must now undertake increased record keeping or employ professional financial
support at an additional cost to the service. [26]
Issues of compliance
NACBCS noted:
We are still concerned about services' ability to understand the GST.
For example, out-of-school-hours care services are totally uncomputerised.
The shire of Macedon has just closed all of its out-of-school-hours
services. If you look at the children's services system around Australia
you see that many are still not computerised to the extent that they
would be able to do the administration involved with pulling out the
data on the GST. It might seem fairly simple for people who come from
a business background, but the children's services system in Australia
has not operated in this very sophisticated way. We are still concerned
that there are many operators, providers and workers who may need some
assistance.
Source: Committee Hansard, 11.2.99, p.642, NACBCS.
9.29 A further matter raised by NOSHSA was the costs of non-participation
in the GST system. Registration is only required for businesses with annual
sales or $50,000 or more and for non-profit organisations with annual
sales of $100,000 or more. Services with low turnovers may choose, due
to either the complex nature of the system or their inability to meet
compliance requirements, not to register. However, to not do so will be
an added cost to the service as they will have to factor the full cost
inclusive of the GST of goods (at present purchased without WST) into
their fees or `be threatened with service viability and probable closure'.
[27]
Utilisation rates and informal care
9.30 The Community Child Care Co-operative (CCCC) and NACBCS expressed
concern that analysts have stated that low-income families, single income
or single parent families will be adversely affected by the tax reforms.
They argued that this will reduce demand for formal children's services.
Further, any increase in costs in the formal sector, because of increased
compliance costs etc, that lead to fee hikes will result in a decrease
in utilisation of services. CCCC noted that `the market at present for
children's services is very inflexible and that any fluctuations in cost
or client's purchasing power could have serious long term effects on the
industry'. [28] Children would either be left
to care for themselves or there would be an increase in use of the unregulated,
informal sector.
9.31 Another factor seen as contributing to falling utilisation in the
formal sector and increasing the trend of children to move into the unregulated
informal sector was the further widening of price differentials between
the formal and informal sectors. The formal sector will have more complex
and expensive arrangements as a result of the GST system compared with
the untaxed equivalents within the non-taxed household sector.
Training of child care staff
9.32 Witnesses were also concerned that the GST will be imposed on adult
education courses. Under the reform proposals GST-free treatment is to
apply only to `accredited vocational education and training courses'.
[29] However, in the child care industry, many
workers attend courses run by agencies such as Community Child Care in
Victoria and Community Child Care Co-op in NSW to ensure that they continue
to improve their skills, especially management skills.
9.33 With already tight budgets, services will be even harder pressed
to provide workers with vocational training and assessment activities
if they have to find extra funds to pay a GST component. It was suggested
that this would have a long term detrimental effect on the quality of
children's services with services having less funds for staff development.
In-service training
NACBCS noted that:
as ongoing staff development is an integral component to maintaining
quality NACBCS has concerns that service quality will suffer.
NACBCS believes it is important to acknowledge that child care workers
are already one of the groups of lowest paid workers. The inclusion
of a 10% GST on staff development and training provides an additional
disincentive to workers and denies them of opportunity to further develop
their skills in their chosen area of employment.
Source Submission No.822, p.8, NACBCS.
9.34 DFaCS responded to a question on notice concerning the GST status
of child care workers undertaking non-accredited courses by stating:
Membership fees
9.35 A number of witnesses raised concerns about membership fees paid
to professional and peak body organisations attracting GST. Some services,
already facing tight budgets, may decide that they are no longer able
to afford such memberships. As a result they will lose access to information
and training provided by professional and peak bodies. It was noted that
professional and peak organisations are often themselves community-based
and non-profit, relying heavily on memberships to survive. [31]
The issue of memberships is discussed further in Chapter 3.
Family Day Care
9.36 The National Family Day Care Council raised with the Committee the
particular concerns of the around 18,000 family day care (FDC) workers
and 360 FDC co-ordination units. It noted that the GST exemption for FDC
means that:
- no GST is payable on the supply of FDC as a service; and
- the FDC provider (ie the individual carer or the individual co-ordination
unit) is entitled to an input tax credit on the purchases that relate
to their provision of FDC.
9.37 The Council stated that there will be negative outcomes for all
those involved with FDC as a result of the tax reform proposals.
- Carers: Any financial advantage attributed to the GST exemption
is likely to be negated by the costs associated with administration
and compliance. This will be particularly so for the smallest operations.
The waiting period for refunds is likely to have a negative impact on
carers' small income base. Those unwilling to register `will forego
claiming the refund of the tax, creating an even greater negative impact
on their cashflow and therefore viability'. Fee increases to cover these
extra costs are likely to have an adverse impact on the demand for child
care.
- Co-ordination units: Negative impacts will result from the
increased costs of the establishment of administration systems including
software; increasing administration and record keeping workloads; and
cash flow problems as a result of timing lags between payment of inputs
for the service and refunds of tax.
- Sponsors/operators: Any negative impact on cash flow of co-ordination
units is also likely to impact on the ability of a sponsor to ensure
the on-going viability of schemes. [32]
Loss of small businesses
The Family Day Care Council concluded:
Our view there is that, if services do contain costs, we will see other
potentially quality components of the service diminished because of
cuts to those costs themselves. It is our view that in all cases any
financial advantage which can be attributed to the GST exemption is
likely to be negated by the costs associated with the admin and compliance,
and it is of grave concern that any increases to fees to cover these
costs are likely to result in a potential loss of demand for our child
care and a subsequent loss of both supply of quality formal home based
child care as well as a destabilising – and at worst, a loss of
thousands of small business operators across the country.
Source: Committee Hansard, 23.2.99, p.750, FDCC.
9.38 The Council stated that carers already face problems in keeping
records to substantiate claims for income tax deductions for expenditure
incurred in providing FDC. The ATO requires that a carer apportion all
household expenditure that relates to the provision of FDC services to
children in care. The ATO has recognised the difficulties of FDC carers:
the tax office…acknowledged that of all small businesses the
operator who has the highest level of accountability and the greatest
level of difficulty and complexity about record keeping is a family
day care carer, because when she cooks spaghetti for the children…she
goes to three shops, gets three receipts, and has to work out how
much of each the children have eaten so she can claim how much her
children ate and what she can claim as an income tax deduction for
the family day care children. [33]
9.39 As a result, the ATO allows `reasonable estimates of business use
of apportionable expenses, provided that carers maintain proper records
that explain how the estimates were calculated and other supporting documentation.
The ATO also allows carers to deduct an average cost of food and drink
provided to children in care.' [34] The Council
also noted that it had taken two years of work with the ATO before the
substantiations and apportionment rules were accepted by the ATO. [35]
9.40 The Council expressed concern that there was no indication that
the ATO will allow carers to use the substantiations and apportionment
rules for the GST as it does for income tax purposes. Without such an
arrangement, carers would face complex arrangements to claim the GST input
credits. If the carers choose not to register, as they are very small
businesses with income of about $15,000 per annum, they will have to absorb
any additional costs resulting from the GST. The Council noted however
that for some carers:
It depends on whether every dollar counts. That is our view, because
for many of these women this is not pocket money. This is not `go
to the cafe' money; this is money to keep the family on track and,
if the claim of the refund is going to make a difference of $824 to
the carer's annual income out of $14,481, she may make that choice
to have to put herself through the night-times of getting the records
in order. [36]
DFaCS acknowledged the difficulties facing FDC
A departmental officer stated in evidence:
I would suggest that this is one particular area. I think family day
care is going to be very difficult in terms of the administration of
the GST. I think that probably is one area that is worthy of attention
– that is, the difficulties facing that particular sector.
Source: Committee Hansard, 2.2.99, p.135.
9.41 A further matter raised by the Council was the shift of responsibility
to the States and Territories under the reform proposals:
within the broadest context, concerns that have been raised around
the impact of the transfer of GST revenue to the states, and what
that might do to what we currently have in terms of national policy
and planning framework for child care.
Family day care is very much at risk in this case because of all
of the child-care services in Australia. It is really the only child-care
service that has a very strong Commonwealth focus, that does not have
the level of participation of the states that the other child-care
services have. So for family day care it would be a very critical
impact if we were to see the national planning and the national policy
broken up into eight states and territories. Other further concerns
about that are of course the potential then for eight states and territories
to have their own priorities, depending on this year's budget or this
term's government, and what their priorities might be about general
child care in itself, but more specifically the types of child care
that are going to be delivered by states, and whether or not our unique
child-care service will get the attention that it deserves. [37]
Access to the small business transition fund
9.42 Many witnesses questioned whether or not child care providers would
have access to the $500 million allocated to small business with GST start-up
costs. It was also noted that the amount allocated will probably amount
to the equivalent of $500 per business and that this amount `will probably
only pay for software updating (if services have a computer and/or software
to update) and does not take into account any additional items required'.
[38]
9.43 In reply to a question on whether child care providers will be able
to access the fund, DFaCS indicated that:
The Government announced on 6 December 1998 the establishment of
a Small Business Consultative Committee to advise the Government on
the transition to A New Tax System. According to the Committee's terms
of reference it will make recommendations to the Government on the
most effective way to assist small business with the costs of transition
to a GST. This will include advising on the distribution of the incentives
announced in the Government's tax reform plan, A New Tax System, and
on the amount of funding necessary for this purpose, up to a limit
of $500m.
9.44 The child care industry will have significant start up and compliance
costs for the GST. Extra funds will be required particularly for small
providers which may not have sophisticated accounting systems. This answer
does not give any reassurances that the child care industry will be able
to access the fund.
Foster carers
9.45 The special circumstances of foster carers was brought to the attention
of the Committee. Foster carers provide care for children and young people,
usually in a family-based home situation. Carers are recruited by either
non-government agencies or directly by government programs.
9.46 Carers receive subsidies from government or non-government agencies.
These subsidies only partially cover the costs associated with providing
for children placed in foster care. The level of subsidy varies depending
on the age of the child and the complexity of the care required. At present
the subsidies are not taxed except in the case of higher level subsidies
which are provided for very high needs children.
9.47 The National Foster Care Forum indicated that research has shown
that the cost of providing care for children in foster care is generally
double or more the cost of caring for a child in a conventional family.
This due to the special needs of foster children (physical, mental and
social), their predisposition to destroy or lose property, and their general
dysfunctional behaviours. [40]
9.48 The Forum indicated that the tax package was silent on the treatment
of foster care and carers. However, carers expect their costs to rise
as a result of the GST. Further, as foster carers are not registered,
they will not be entitled to input tax credits on goods purchased by them
for the sole use of the fostered child including beds, linen, mobility
aids etc.
9.49 If a purchase is made on behalf of the foster carer by the registered
non-profit organisation tax credits would presumably be available, but
this would impose an additional administrative burden on the organisation.
9.50 The Forum concluded:
Many carers are drawn from the lower half of the socio-economic spectrum
and are already struggling to make ends meet whilst providing quality
care for their foster children. They do not have any disposable funds
available to them to cover the expected increases in expenses in a
GST environment. Carers across Australia are already being driven
out of the foster care system as a direct result of increasing placement
costs. The Forum is particularly concerned that if this trend continues,
the care system will be forced to return to the use of residential
care for children in need of care. Such a change of direction would
result in poorer outcomes for children in care and massively increased
care costs for the state. [41]
Conclusions
9.51 The overwhelming tenor of the evidence from the child care industry
was that even though the industry is to be GST-free there is a great potential
for adverse outcomes once the tax reforms are introduced. Witnesses pointed
out that:
- the industry is at present WST exempt;
- while input tax credits may be claimed after 3 months or 1 month,
this will add to cash flow problems particularly because many providers
do not have a reserve of funds available to finance the initial cost
increases;
- there will be increased administrative burdens associated with the
GST;
- out of school hours care and vacation care do not have systems in
place to administer the GST;
- family day care workers will face particularly complex problems;
- in-service training of staff will probably be taxed under the GST;
- the amount allocated to help with transitional arrangements for the
GST is small and will not adequately compensate providers for the start-up
expenses involved; and
- many in the industry are already facing financial problems due to
changes in Government funding arrangements, oversupply of places and
falling utilisation rates.
9.52 The Committee considers that the potential problems with cash flow
that are of significant concern. There is clear evidence that many in
the industry, both private and community-based providers, are continuing
to face problems with viability. Any increases in financial imposts, and
in some cases only a very small increase may be needed, will undermine
the ability of a provider to continue to offer care for children. As stated
by witnesses some providers are on the `knife edge' as a result of changes
to Government assistance and underlying structural problems within the
industry.
9.53 It is this state of the industry that has not been taken into account
by the Government. While the Vos Committee has concluded that the general
impact of being GST-free on cash flow will be minimal, such a conclusion
does not necessarily apply to a particular industry or a particular sector
within an industry. This is the case in the child care industry where
many providers have few or no financial reserves to fall back on and where
any adverse impact on cash flow will not be minimal. It could in fact
lead to business failure.
9.54 Greater emphasis must be placed on maintaining the financial viability
of child care providers and future stability of the industry. One matter
adding to uncertainty in the industry is whether or not the Government
will move to paying child care assistance direct to families and paying
assistance in arrears. A decision to move to these arrangements will only
add to cash flow problems and further exacerbate already difficult financial
environments.
9.55 The Government has also failed to recognise that some sectors of
the industry, notably the out of school hours care, have relatively unsophisticated
accounting systems. Further many centres have already closed because of
extra administrative burdens associated with changes to the Childcare
Assistance system. The Government has failed to recognise that the GST
system will require additional resources that are often not available.
9.56 It also fails to take into account the special needs of Family Day
Care providers. Carers in this scheme are women at home providing care
for a small number of children. They will be required to apportion household
expenses that relate to family day care for any input tax credit –
a complex procedure.
9.57 It has been pointed out to the Committee that small child care centres,
out of school hours and family day care providers may not be required
to register for the GST and thus not have to undertake any accounting
procedures to recover input tax credits. This is of course true. However,
not registering also means that all extra costs must be absorbed or passed
on to parents in the form of higher fees.
9.58 The question for many small providers will be whether to register
and take on an increased administration burden but at the end of the day
receive input tax credits. Or not to register, absorb costs - not an option
for many providers because of existing financial problems – or pass
costs onto parents, also not an option as child care is particularly price
sensitive and any increase may further exacerbate the move away from formal
child care services.
9.59 The Committee recognises that increases in costs might sometimes
be small in dollar amounts, but are likely to have a severe effect on
those child care centres whose budgets are finely balanced. For an out
of school hours service that is only just getting by, such an increase
could be enough to force the closure of the service. That will mean more
latchkey children and more children in unregulated informal care. For
the family day care provider, that extra $800 a year is only recovered
by staying up at night to do the input tax credit paperwork. Carers are
very low-income earners and $800 represents a significant amount of income
to them.
9.60 The Committee considers that, contrary to Government statements,
the additional administration required for child care providers to claim
input tax credits will not be small. The Government has failed to recognise
that the financial and accounting systems of many community-based providers
are unsophisticated. Further, child care providers purchase many small
items for which the provider must have sufficient records for substantiation.
All this will add to the administrative burden of child care providers
at a time when they are least able to absorb any additional costs.
9.61 While the Government has stated that there will be greater benefits
for families with the introduction of the Child Care Benefit, one anomaly
is still to be addressed. Families with children using different types
of services are treated differently to families using only one type of
service. The Committee raised this issue in its 1998 report on child care
funding. The matter is still to be addressed by the Government.
9.62 In evidence, the Department of Family and Community Services stated
that it: had not undertaken any work on the viability and cash flow of
child care centres; had not undertaken an examination of compliance costs
for centres; and had not undertaken an examination of administration issues
for outside school hours care or vacation care.
DFaCS - no assessment of effect on children's services
Cost of providing for children
Senator CHRIS EVANS – The other issue that has been raised
with me is that of the cost of a family. Are you aware of what assumptions
have been made in the tax package about the cost of children?
Mr Tune – There are no assumptions made about the cost
of children that I am aware of in the tax package.
Source: Committee Hansard, 2.2.99, p.110, DFaCS.
Child care
Senator CHRIS EVANS – I have a couple of questions on child
care, just of make your trip worthwhile, Ms Raymond. I know it is exempt.
I just want to run through a few issues that have been raised with me.
First of all, has the department done any work on the viability and
cash flow of centre? A few concerns have been raised about inputs being
taxed and then waiting for reimbursement. Has there any work done on
that?
Ms Raymond – No specific work in the department.
Source: Committee Hansard, 2.2.99, p.130, DFaCS.
9.63 The Committee considers that the GST-free/input tax credit regime
adds a layer of complexity to the child care industry at a time when the
industry is still coming to grips with the changes imposed since 1997.
There is clear evidence that cost increases from these changes have a
detrimental impact on the delivery and use of children's services. The
Committee also considers that the Government has failed to recognise the
unique nature of the child care industry and the negative impact that
the GST will have on it.
9.64 The Committee considers that foster carers provide a unique and
precious community service. Care may be provided during an overnight stay
through to the full life span of a child until it attains adulthood. Some
children in foster care may be profoundly disabled requiring full-time,
intensive care and attention. The application of a GST on expenditure
for children in foster care is visibly unfair and could prevent foster
carers from taking on this extraordinarily challenging work.
Footnotes
[1] The Child Care Cash Rebate is currently
paid at a rate of 30 per cent if family income is $70,000 or less for
one child in care or 20 per cent for incomes greater than $70,000 for
one child in care. Families must pay the first $20.00 of child care costs
with the Rebate being available up to the maximum amount of $28.50 for
those on 30 per cent and $19.00 for the 20 per cent rate.
[2] Tax Reform: not a new tax, a new tax
system, p.55.
[3] Department of the Treasury, A new tax
system: Community Sector Briefing Kit, p.12.
[4] Submission No. 848, p.21 (Brotherhood of
St Laurence).
[5] Submission No.1378, p.11 (NOSHSA).
[6] Submission No.594, p.4 (ACCC).
[7] Committee Hansard, 5.2.99, p.441
(ACCC). See also Submission No.1378, p.9 (NOSHSA).
[8] Committee Hansard, 2.2.99, pp.99-100
(DFaCS).
[9] Tax Reform: not a new tax, a new tax
system, p. 94.
[10] Submission No.603, p.9 (DFaCS).
[11] Submission No.603, p.9 (DFaCS).
[12] Submission No.342, p.4 (Community Child
Care Co-operative Ltd), Submission No.470, p.2 (South Lake Child Care
Centre), Submission No.822, p.4 (NACBCS), Submission No.1378, pp.8-9 (NOSHSA).
[13] See for example, Submission No.822, p.4
(NACBCS).
[14] Submission No.342, p.8 (Community Child
Care Co-operative Ltd), Submission No.470, p.2 (South Lake Child Care
Centre).
[15] Submission No.1410, Attachment 1, p.16
(National Children's Services Forum).
[16] Vos Report, p.23.
[17] Committee Hansard, 25.2.99, p.1011
(South Lake Child Care Centre).
[18] Submission No.470, p. 2 (South Lake Child
Care Centre).
[19] Submission No.793, p.3 (LHMU).
[20] Submission No.793, p.3 (LHMU).
[21] Submission No.594, p.11 (Australian Confederation
of Child Care).
[22] Submission No.1410, Attachment 1, p.5
(National Children's Services Forum).
[23] A New Tax System (Goods and Services Tax)
Bill 1998, Explanatory Memorandum, p.180.
[24] Submission No.793, p.4 (LHMU).
[25] Submission No.342, p.8 (Community Child
Care Co-operative Ltd (NSW)); Submission No.822 (NACBCS).
[26] Submission No.1378, p.7 (NOSHSA).
[27] Submission No.1378 (NOSHSA).
[28] Submission No.342, p.11 (Community Child
Care Co-operative Ltd). See also Submission No.822, p.6 (NACBCS), Submission
No.1378, p.10 (NOSHSA).
[29] Vos Report, p.60.
[30] Additional Information, 28.2.99, p.18
DFaCS.
[31] Submission No.1378, p.11 (NOSHSA), Submission
No.822 p.8 (NACBCS).
[32] Submission No.1332. pp.2-3 (National Family
Day Care Council).
[33] Committee Hansard, 23.2.99, p.754
(National Family Day Care Council).
[34] Submission No.1332, p.11 (Family Day Care
Council).
[35] Committee Hansard, 23.2.99, p.758
(National Family Day Care Council).
[36] Committee Hansard, 23.2.99, p.757
(National Family Day Care Council).
[37] Committee Hansard, 23.2.99, p.750
(National Family Day Care Council).
[38] Submission No.1378, p.8 (NOSHSA)
[39] Additional Information, 28.2.99, DFaCS.
[40] Submission No. 1421, p.2 (National Foster
Care Forum). See also Submission No.1034, p.26 Australian Catholic Social
Welfare Commission).
[41] Submission No. 1421, p.2 (National Foster
Care Forum).