Japan’s Free Childcare Program No Panacea for Daycare Waitlists

A new government program offering free preschool education and childcare is slated for launch in October 2019. Beginning that month, for all families with children aged 3 to 5, and for low-income families with children up to age 2, the use of all preschool education or childcare facilities—not just ninka hoikuen, or licensed daycare centers, for which the central government covers operating costs—will be free. Government and daycare officials have been optimistic that free preschool will not substantially increase the number of children waiting for daycare places, since daycare fees for low-income families are very low to start with, and most 3- to 5-year-olds already attend daycare or kindergarten.

However, I don’t share their optimism. Even though the program has not started yet, municipalities are reporting that applications for licensed daycares as of April are already running higher than at the same time last year, and that more parents of 3-year olds, for which waitlists have generally been shorter than for younger children, are applying to place their children in licensed daycare centers than ever before. Meanwhile, muninka institutions, which are not formally certified by the government but are generally equal in quality to their ninka counterparts, will not be entirely free; instead, parents using these daycares will receive subsidies to defray a substantial part of the fees they pay. That has spurred more parents to opt for licensed daycares, which will be completely free: as a result, some muninka daycares are already closing. It’s expected that the new program will create much higher demand for licensed daycare places and that more parents will be eager to avail their children of this free service. Fewer noncertified daycare places may lead to longer waitlists in 2020, so the policy is having a distorting effect.

Waitlists and the Financial Issue

This situation highlights the close connection between daycare fees, be they high or low, and the number of children waitlisted for places at daycare facilities. Politicians, thinking they were doing families with preschoolers a good turn, vied to lower or completely eliminate fees, as will be the case starting later this year. Instead, though, the new program is leading to longer waitlists for daycare and increasing the burden on families with young children. The road to hell is indeed paved with good intentions.

Actually, the waitlist issue itself has its roots in the fact that daycare fees are very low to begin with. Let me give you the example of the situation in Tokyo, based on what I observed when I previously served as a special advisor to Tokyo Governor Koike Yuriko for measures to shorten daycare waitlists.

Fees for licensed daycares differ based on household income; monthly fees average around ¥20,000 to ¥30,000. On the other hand, monthly fees at noncertified daycares can easily be double that or more. Tokyo has numerous muninka daycares called ninshō facilities—daycares certified by the Tokyo metropolitan government that receive subsidies from the TMG or cities in greater Tokyo. While these facilities offer the same quality of care as licensed daycares, average monthly fees are over ¥65,000. Consequently, licensed daycares attract many more applicants because of their much lower fees, which means long waitlists for those facilities.

Some say that the waitlist issue can be taken care of by increasing the number of licensed daycares to meet demand. But that is easier said than done, given the state of municipal finances. Operating costs for licensed daycares in cities in greater Tokyo run to ¥150,000 to ¥200,000 per month per child. Infant care, in particular, is very costly at ¥400,000 per month per child. In many municipalities, monthly per-child operating costs for public daycare facilities come to ¥500,000 to ¥600,000. Meanwhile, parents are charged only a fraction of this cost, and cities must use tax money to bridge the gap.

One radical solution might be for municipalities to pay each family with the youngest children, up to the age of two—a group for whom waitlists are especially long—a direct monthly stipend of ¥200,000 so that those children can be looked after at home. That would certainly be less costly than the current system: no matter how affluent many cities in greater Tokyo are, financial constraints make it difficult for them to open more licensed daycares.

Daycare as a Form of Negative Income Redistribution

Parents with children in licensed daycares focus mainly on the fees they pay; few probably realize that the service is heavily tax-supported. Those parents are in fact already receiving what could be called a “child-rearing subsidy” amounting to several hundred thousand yen per month, so they are the lucky ones. Meanwhile, parents with children in muninka daycares receive very low or no subsidies at all. And those who give up on trying to find daycare for their children and end up keeping them at home don’t receive a single yen in subsidies. This is not only unfair, it is a major failing of a welfare policy intended to help the weaker members of the community.

The current system for assigning daycare places is score-based, with points assigned according to the need for daycare in each family. Selections are made in descending order of scores, with children from families with the highest scores selected first. Except in the case of low-income families receiving welfare support, the point system favors families with two parents working as full-time regular employees. This places parents who are nonregular employees at a disadvantage, and in cities with long daycare waitlists, many nonregular employee parents are forced to use muninka daycares or to look after their children at home. Generally speaking, regular employees enjoy considerably higher family incomes than nonregular employees. This means that under the current licensed daycare system, better-off families where the parents are regular employees receive generous subsidies while other families are left out in the cold. To me, this system, which supports the strong and disadvantages the weak, is truly perverse.

Will the free preschool program do anything to improve the situation? It’s true that users of noncertified daycares will receive a certain amount in subsidies to help offset fees. But those with children in licensed daycares will not need to pay at all, and moreover, it is higher-income families, who pay somewhat higher fees, that will stand to benefit the most. The end result is worsened income distribution, since the money for free preschool will come from the consumption tax set to increase in October this year, a regressive taxation scheme that imposes a bigger burden on low-income earners.

Subsidies for All

What is the solution? If it proves politically impossible for the government to reverse its policy of funding free preschool through the consumption tax increase, I propose tweaking the program to keep unfairness to a minimum. The easiest way to do this would be to pay the money for free preschool directly to parents rather than channel it to cities or daycares. At the same time, part of the monies cities use to subsidize licensed daycares could be used to subsidize users instead, with the government paying each family with eligible children a child-rearing subsidy of ¥65,000 per month. Just taking this step would dramatically improve the situation.

If fees for licensed daycares were set at ¥65,000 per month for all users, regardless of income, families could simply use the child-rearing subsidy to pay the daycare fee, essentially making daycare free. However, since the same subsidy would be paid to all parents of eligible children, not just licensed daycare users, but also parents using muninka daycares and kindergartens, and parents looking after their children at home, doing so would go a long way toward eliminating unfairness and inequality.

Would that mean longer waitlists? Probably not. Able to charge ¥65,000 in monthly fees, noncertified daycares could be profitable while still offering quality childcare. Since users would be paying the same fees whether their children were in licensed daycares or not, many families might opt for the muninka option because of distinctive features or convenient services they offer. In other words, although constraints on building more licensed daycares would remain, the number of noncertified daycares could grow substantially under such an arrangement.

Some may worry about the quality of care at these muninka facilities. In that case, they could be more closely regulated with passage of a law requiring that they meet the standards of Tokyo-certified ninshō daycares. This would be a common-sense measure, given that muninka daycares would now also be supported by tax money through the subsidies paid to users. Furthermore, some parents who placed their children in licensed daycares simply because the fees were low might opt to look after their children at home and keep the subsidy. Or even if they sent their children to kindergarten, they would still have money left over after paying kindergarten fees. Ultimately, the program would reduce the number of families wishing to use licensed daycares and could help reduce waitlists.

The problem, of course, is where to find the money. I think it could come from gradually cutting back on the subsidies now being paid to licensed daycares. These facilities have a very high cost structure, so there is plenty of room for cutting expenses. As ninka daycares compete with their muninka and ninshō counterparts, licensed facility operators should learn from the private sector and reduce their operating costs. It might even be desirable for the latter types of daycare to replace licensed facilities if they aren’t cost-competitive. In fact, to do away with the unfair advantage of government-supported daycares over privately-run facilities, which stifles competition, all public daycares should be privatized. Continuing to give only licensed daycares special treatment simply isn’t fair.

The new free preschool program should be seen as an opportunity to not just do away with the existing scattershot tax support but also to improve the daycare system. If the government can demonstrate that this is being done, the public may be more receptive to the coming increase in the consumption tax.

(Originally published in Japanese on May 13. 2019. Banner photo © Pixta.)