Business | YEN FOR LIVING

Abe’s free day care pledge may be an appealing solution for the wrong problem

by Philip Brasor and Masako Tsubuku

Contributing Writers

Just before the recent Lower House election in October, Prime Minister Shinzo Abe pledged to make public day care services and kindergartens free for children between the ages of 3 and 5 and free for children below the age of 3 if they were from lower income households.

It was an obvious ploy to win votes, and Abe offered few details as to how the government would pay for such a policy. All he said was that a good portion of the projected consumption tax hike would be diverted into social services, one of which would be free preschool care.

Whether the gambit was instrumental in securing victory for the ruling party is hard to tell, but in any case after the election was over the chickens came home to roost. The most persistent problem with regards to day care in Japan is not the cost but rather the availability. Many children living in cities are on waiting lists, and as a result some go to unauthorized day care centers. Such centers are private facilities that have not been certified by the proper authorities and thus can’t be considered “public day care,” which requires things like minimum interior floor area and employees with credentials.

Many parents were angry because at first the government said that unauthorized day care facilities would not qualify for the proposed free day care program. In that case, these parents said, the program was unfair, because until the government can guarantee enough public day care slots for every household that needs them, it was wrong to penalize parents who had to resort to unauthorized private day care in order to fulfill their employment responsibilities.

Consequently, the government is now saying it will also subsidize fees up to a certain level for unauthorized day care, though we don’t know at this point what type of day care services will be covered. Unauthorized day care, as it stands, includes a large range of services, and not just expensive private kindergartens and baby-sitting services run out of someone’s home. It also includes company in-house day care services, after-hours child care services and so-called baby hotels.

The Abe administration maintains that it will provide enough slots in public day care facilities by 2020. According to an article in the Nov. 18 Tokyo Shimbun, the government estimates that 320,000 slots will be needed by that time — an estimate based on the number of applications for slots in recent years and the percentage of married women between the ages of 25 and 44 who are working. However, research think tank Nomura Research Institute estimates that 886,000 slots will be needed, which is almost three times as many. If Nomura’s calculations are closer to the truth, then the government, if it sticks to its word, could be subsidizing private day care for longer than it apparently intends. And since private day care is usually more expensive than public day care, it could end up being quite expensive for taxpayers.

As it stands, many parents who send their children to private day care facilities can receive subsidies from their local governments — usually up to half the cost. But like all social services that depends on the income of the parents. Some are now saying that the government’s free day care plan is wasteful because even households that make a lot of money and which can afford expensive private day care will be reimbursed if the free day care program is implemented.

Under the current public day care application system, parents must provide information to determine how much they will pay for services. In principle, costs are determined according to how much a household pays in local taxes, or juminzei, because in the end public day care is administered by local governments — even though it is the central government that sets the parameters. Local governments already have local tax records on file, so it is easy for them to confirm what a household pays. However, the amount of local tax paid isn’t necessarily in direct proportion to household income. If both parents work full time, their tax will be higher than if only one works full time. But if they have three children they will pay much less than a couple who earns the same amount but has only one child.

There are three designations for children attending preschool facilities. One designation is for children who attend public kindergartens, which are part of the public education system. Every child who wishes to attend a public kindergarten can do so. However, since kindergarten is normally only run for 4 hours a day, parents who work full time cannot use it as a form of day care.

What this means is that as more mothers enter the workforce and begin careers outside the home fewer children will go to kindergarten, as these working mothers still need day care until their children enter elementary school. According to the education corporation Benesse, the average cost for public kindergarten in Japan is about ¥150,000 a year, and for private kindergartens about ¥367,000 a year. If Abe keeps his promise, much of this will be free, too. One possible solution to the day care shortage is to switch more kindergarten resources to day care resources as fewer households send their kids to kindergarten in favor of day care.

There are two designations for public day care: children 3 years of age or older, and children under the age of 3. Parents must also indicate how long their child will require day care each day, either 8 hours or 11 hours. Charges for 8-hour care are slightly more economical than those for 11-hour care, and charges for children under the age of 3 are higher than those for children 3 years and older. Based on these criteria and the parents’ local tax bill, the central government sets maximum monthly fees for local governments to follow as a framework. According to our own rough calculations of national tax rates, a couple with one child making a combined income of ¥5 million owes on average about ¥105,000 in local taxes a year, depending on the region, which means they will likely pay ¥35,000-¥40,000 a month for 11-hour day care. If they have two children in day care, the second child receives care for half the cost. If they have a third child attending at the same time, care for that child will be free.

But that is only a theoretical example. A couple with three preschool-age children making only ¥5 million a year will pay no local taxes, which means they can be charged no more than ¥6,000 a month for day care for their first child. Realistically speaking, however, a couple only making ¥5 million a year may not be able to afford 3 children in the first place. The point is that the pricing system for public day care as it stands now does a fair job of taking into account a household’s ability to pay based on a variety of financial factors, so the real problem is not bringing down the cost but creating more slots. As mentioned, this is the main complaint about the Abe pledge. Instead of funneling money into subsidies for parents, it should be funneled into building more facilities and paying day care workers a living wage so that they don’t quit after a few months. There’s no point in providing free public day care if there isn’t any public day care in the first place.

Yen for Living, a column that covers issues related to making, spending and saving money in Japan, runs on the second Saturday of every month.