Ontario ignores warning signs from Quebec, announces subsidized child care plan

On the eve of their provincial budget release, the Ontario Liberals have announced their intention to make child care services “free” in the province. Starting in 2020, Premier Kathleen Wynne promises that all children between the age of two-and-a-half and the time of entry in kindergarten will obtain full-day free child care at licensed facilities.

The Liberals are the latest political party to join the bandwagon of “universal” subsidized universal daycare in the hope of mimicking the often-praised daycare system of Quebec, which offers subsidized low-rates for child care. However, as I noted in a recent study, imitating Quebec is not a worthwhile endeavour—but potentially fiscally ruinous, especially for a province such as Ontario mired in government debt.

In 1997, the Quebec government launched a program of universal subsidized child care. Initially, rates were set at $5 per day, but then went up to $7 per day and now operate on a sliding scale of fees that depends on parental income. The subsidies cost north of $2.4 billion a year or roughly $9,700 per child. The promise, made by the government at the time, was that this cost (which is now twice the initial estimate on a per-place basis) would be offset by a greater participation of mothers in the labour market and the subsequent increased tax revenues for government.

Given Quebec’s then-low rates of labour force participation among women of child-rearing age, this seemed like low-hanging fruit that would make the program less costly on net. It’s on the same linchpin that most proposals for subsidized (or “free”) child care hang: that mothers will return to work in droves. Indeed, Premier Wynne is making a similar claim for Ontario today.

The problem is that even in Quebec, this did not make-up for the cost of the policy. While there has been an increase in the number of working mothers, which can be attributed to the policy, that increase recovered roughly 40 per cent of the program’s cost through increased income taxes and payroll taxes. Another estimate points to a fiscal shortfall of $1.2 billion for the provincial government.

In fact, it should be noted that these estimates are probably too generous regarding the causal effects of the policy on labour force participation. To properly estimate the effect of the policy, we must assume that the policy is akin to a lab test where only one subject (the province of Quebec) is treated and the others (all the other provinces) are not subject to the same treatment. All else being equal, any emerging differences between the treated (Quebec) and the untreated (rest of Canada) could be attributed to the policy. The rest of Canada is the benchmark for what the labour participation rate of mothers would have been, absent the policy.

But around the same time Quebec began its child care experiment, the federal government enacted employment insurance reform, which disproportionately affected Atlantic Canada and Quebec. This muddies the waters and implies that the “rest of Canada” as a whole is not the proper counterfactual—Atlantic Canada is. When compared with Atlantic Canada, Quebec’s increase in the labour participation rates of mothers is much less impressive (even though it still exists). Adjusting estimations of how many mothers returned to work drags down the benefits and increases the net cost.

Furthermore, it’s impossible to replicate Quebec’s experiment in the rest of Canada. When Quebec implemented its policy, the employment rate of women of childrearing age was relatively low (69.7 per cent). No province today has such a low rate—the closest is Newfoundland (73.5 per cent) followed by Alberta (75.7 per cent). Ontario’s rate is 76.8 per cent. This reduces the room for generating the same (small) benefits Quebec achieved. As such, this means potentially larger shortfalls for other provinces that adopt similar child care policy as Quebec.

Finally, it’s worth noting that the subsidized daycare in Quebec came with long waiting lists, which pushed parents to look elsewhere including unsubsidized centres where daily rates vary between $37 and $41 per day. Close to half of the increase in the supply of child care places since 2003 came from these unsubsidized providers, which means Quebec parents are paying twice for daycare—through their taxes and through the fees they pay to private unsubsidized operators.

All told, the Quebec experiment with subsidized child care should serve as a cautionary tale—not an inspiration.