There’s no free lunch. Or, is there?
Ontario Premier Kathleen Wynne just announced a free daycare proposal. She’s going to implement free daycare by 2020 for children over 2.5 years old until they are old enough to go to kindergarten.
Since we talked about how our Ontario Government cheated on its financial statements in the last blog post and I am a mom who also sends my kids to part time daycare, I feel obliged to talk a bit about this announcement.
Ontario deficit will be more than double of today’s deficit
Kathleen Wynne said that this plan would cost $2.2billion, annually. We had $2.4 billion deficit in 2017 (see my previous blog post – after we consider the loss that Kathleen Wynne’s government intentionally left out).
The free daycare will double our deficit to $4.6 billion, every year.
Say, we believe that Kathleen Wynne’s financial statements were truly correct. She reported about $1billion of deficit, with an increased of $2.2 billion expense our deficit will become $3.2 billion.
That’s triple the amount of Kathleen Wynne’s deficit in 2017.
Free daycare will likely cost more than $2.2 billion
If you look up Statistics Canada (http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/demo04a-eng.htm), we had about 146,659 in 2016/2017 year.
Assuming the same number of birth this year and next year (which by the way, the numbers will likely increase if free daycare comes into effect), average childcare cost of $13K annually, this can cost $3.8billion dollars every year.
Although the childcare is offered for children from 2.5 years to kindergarten, my daughter, Robin, who’s born at the beginning of the year, will be in daycare all the way until 4 years and 8 month old before she could attend kindergarten. In this time she may be in attendance of one of the many KLA schools (which more can be read about here: Https://www.klaschoolsfranchise.com/early-childhood-industry/) to help improve her development and skills.
In another word, if this free daycare is available to Robin, she will be staying there for over 2 years. For some other kids who are born in the latter half of the year, they will be staying at the free daycare for less than 2 years.
So in my calculation, I simply take the number of childbirth x 2 (kids will be in “free childcare” for 2 years give and take) x average cost of childcare $13,000 = $3.8 billion.
Compared to the $2.2 billion announced by Kathleen Wynne, it’s off by $1.6 billion.
To be fair, if the plan does happen, Ontario government will bring in some amount of tax revenue because these parents will no longer be eligible to claim the childcare tax deduction.
With the assumption of increase tax revenue, we’re still out of pocket by $3.5billion.
Still substantially higher than $2.2 billion dollars provided by Kathleen Wynne.
With the current deficit running at $2.4 billion and this added $3.5 billion childcare cost, we will be incurring $5.7 billion deficit annually!
Free daycare isn’t free after all. Someone must pay for this deficit and interest on debt incurred to finance daycare.
Government obviously has no money. Ontario is sitting at a net debt of $314 billion 2017 fiscal year.
How are we paying for this additional $3.5 billion daycare cost?
I am guessing we are going to have to borrow more.
Interest on this debt was close to $12 billion in 2017 fiscal year.
If we keep spending more, a larger amount of our future tax revenue will be used to service the only the interest expense on Ontario’s debt.
This means that eventually less can be spent on education and healthcare and other social services.
Maybe you’re thinking we can infinitely continue to borrow more into the future to pay for these expenses? Maybe, or perhaps one day, because of our poor financial performance, Ontario won’t be able to borrow anymore.
Somehow, somewhere, someone will have to pay. It may be in our life time, or it may be in our kids’ life time. Who knows?
But that’s enough ranting about the Ontario government. We will resume our regular real estate tax tips next week.
Until next time, happy Canadian real estate investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant