Not merely does the Productivity Commission’s draft report on childcare and early childhood learning sink the slipper into Tony Abbott’s “signature policy” on paid parental leave, it also sinks the hopes of policymakers that tweaking transfer payments and childcare availability will increase participation by mothers in the workforce to help offset the coming labour supply problems in an ageing Australia.

“Productivity, participation and population” — the three Ps — would be the key to economic growth in an ageing Australia, we’ve been told repeatedly by Treasury and successive treasurers. But the PC has delivered a body blow to one part of the participation agenda. The best reform scenario it can muster for childcare policy is one that delivers an addition of just 47,000 to the workforce, at a cost of an additional $800 million a year. That’s a cost of around $17,000 a job — what we were paying every year for automotive industry jobs. The net result is additional GDP growth of 0.4% or $5.5 billion.

Part of the problem is the way we taper transfer payments as household income rises — that is, means testing of welfare, which everyone agrees is good policy (the Coalition in opposition said it was class warfare, but has undergone a Damascene conversion on the issue since coming to government) counteracts other incentives to encourage parents (basically, mothers) into the workforce. “Given the broader welfare settings, there is only so much that changes to ECEC [early childhood education and care] assistance and accessibility can do to improve workforce participation,” the draft report concludes. When you add that to the fact that Australians appear to much more strongly prefer part-time work in the early years of parenting than parents in other developed countries, the potential gains in participation look meagre indeed.

“There are thus no big wins here … there’s only making the existing enormous subsidy system work more efficiently.”

The commission doesn’t mince words in its assessment of Abbott’s PPL scheme, which the government has tried, unenthusiastically, to sell as a participation measure. “The Commission considers that it is unclear that the proposed changes to the Paid Parental Leave scheme — which is more generous than the existing scheme and that recommended in the Commission’s 2009 report on paid parental leave — would bring significant additional benefits to the broader community beyond those occurring under the existing scheme,” it concludes — and it’s talking about the current version, not the original Rolls-Royce version that maxed out at $150,000.

The childcare system — and the complex web of subsidies governments have established to support it — of course isn’t merely about encouraging mothers back into the workforce. Childcare, especially pre-school in the year before school, delivers significant benefits in terms of improved educational performance, identifying problems in kids earlier and helping address disadvantage, although the PC sees those benefits are difficult to quantify, saying about its proposals: “in the longer term, the proposed changes in the ECEC system should result in additional benefits to the community associated with universal preschool attendance, and increased uptake of ECEC by children from disadvantaged and lower socio-economic backgrounds.”

This is also a very expensive area of policy — currently we spend around $8 billion a year, and the PC wants to spend 10% more. But it wants a better targeted system, potentially involving the phasing out of subsidies to high incomes earners, while more funding is directed at kids with special needs and indigenous or disadvantaged kids. The proposal to permit subsidies for nannies — albeit qualified childcare workers nannying — is aimed at improving flexibility and accessibility, although the PC draws the line at funding for au pairs, merely suggesting visa requirements be relaxed. It also suggests nannies might take some pressure off demand for childcare centres, which the PC notes charges what the government-subsidised market will bear where demand allows it to.

There are thus no big wins here, no bonanza of increased participation from parents gratefully returning to employment because they’ve found a childcare solution. There’s only making the existing, enormous, subsidy system work more efficiently, and making sure that it functions more effectively in delivering educational outcomes.