Childcare Subsidies, Childcare Costs and Benefit Erosion: Simulations for Ireland

Abstract

The National Childcare Scheme (NCS) is a government subsidy introduced in 2019 to reduce the cost of formal childcare in Ireland. This research explores the effectiveness of the NCS in achieving this aim by estimating the cost ‘coverage’ of the subsidy, measured by the ratio of the subsidy to the total cost of care. Using the microsimulation model, SWITCH, linked to 2022 data from the Survey of Income and Living Conditions, we find that the NCS covers 28 per cent of childcare costs on average for eligible families. While the universal component of the NCS has increased over time, most of the parameters of the means-tested component have remained fixed in nominal terms. We carry out a counterfactual simulation, in which the thresholds for the income-assessed subsidy had evolved in line with wage inflation since 2019. We estimate that such indexation would increase coverage to 37 per cent while the cost to the Exchequer would increase by 30 per cent. These results point to the scale of benefit erosion that has occurred due to the nominal freeze to the parameters of the income-assessed subsidy.