Federal election 2019: Labor's childcare proposal 'a really big deal for typical families', says Grattan Institute

Updated

New independent modelling claims Labor's $4 billion childcare policy would "substantially" boost Australia's economic growth.

Key points: The Grattan Institute believes Labor's childcare policy is the most significant economic reform proposal of the election

They estimate affected families could be thousands of dollars better off under Labor's plan

Labor's plan would encourage a household's second earner to work more days

According to the Grattan Institute, Labor's plan provides an incentive for second earners in a family to work more days. Despite not being specifically promoted as an economic policy, Grattan chief executive John Daley claims it is "the most important economic reform being proposed in this election".

The workforce participation rate among those aged 15–64 years is 73.5 per cent for women and 82.9 per cent for men.

In 2012, a Grattan Institute report calculated the impact on the Australian economy of lifting female workforce participation by six percentage points to match what was then Canada's rate.

It found a policy prescription of that nature would add $25 billion to the country's GDP.

KPMG more recently estimated a potential $60 billion dividend from achieving equality in the participation rates of Australian men and women.

In the absence of a magic wand that waves higher productivity into workplaces, Mr Daley says increasing the number of workers in the economy is the most substantial economic reform governments can commit to.

"As an economic reform, it's the equivalent of picking up $50 bills on the pavement. This is a way of getting economic growth that is not that hard," he said.

40 per cent of female workforce is part time

While Australia's rate of female workforce participation is not out of step with comparable countries, the number of women working part-time is disproportionately high. Forty per cent of women and just 4.5 per cent of men work part time in Australia.

Economists argue the decision for the lower-earning parent to do more of the cleaning, cooking and caring at home is often a financial one. Where one parent earns $80,000 working full-time there is often no incentive for a second earner on a potential full-time salary of $75,000 to move from a three-day working week to four days.

Mr Daley is certain both the Government and Labor have long been aware of the problem. An increasing number of Australian mothers have an effective marginal tax rate of more than 90 per cent.

"The combination of tax on extra earnings when you work more days, the fact that you lose family tax benefits and get less childcare support means the second earner, who is usually a woman, would bring home as little as five or 10 cents in the dollar for working an extra day," he said.

'There were times I worked for nothing'

Mark Howley and Virginia Tierney have three children under seven. They have a combined income of $200,000 so their out-of-pocket childcare costs for youngest child Eadie (four) are significant.

At $15,000, it's more than the cost of sending their older two children to the local Catholic primary school.

When all three were in child care, Ms Tierney sometimes went to work but got no financial benefit from doing so.

"There were times when I worked for nothing. My wage went towards the childcare bill," she said.

"Some weeks I could bring home $50. Some weeks I wouldn't bring home anything. It's really hard and it shouldn't be."

Mr Daley modelled Labor's policy because he wanted to see whether the plan would provide a financial incentive for the lower earner in a family to work more days a week.

The first scenario assumes a family with two children in care has a primary earner on a gross income of $95,000 and the secondary earner has the potential to earn up to $60,999 for working five days a week.

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Under Labor's policy, that family is $1,261 better off when the second earner moves from a three to a four-day working week.

For a typical family, where both parents have the potential to earn $50,000 each working full-time, moving one of them from a one-day working week to two days improves the family income by $1,784 a year.

"For a typical family on typical incomes with two kids in child care this is a really big deal," Mr Daley said.

No financial incentive for parents to work more days

Over the past year, the Coalition has made the childcare rebate more generous.

There is no longer a cap on the amount of subsidised child care couples can access when their combined income is $186,958 or less.

Families earning more than $186,958 but less than $351,248 will have an annual cap of $10,190 per child per year — an increase from the previous cap of $7,613.

Neither side of politics intends to deliver any childcare subsidies to parents with a combined income of more than $351,248.

Standing in for the Minister for Education Dan Tehan at a pre-election childcare forum in Melbourne, Victorian Liberal senator and new father James Paterson said the Coalition's childcare policy, which includes a record $8.3 billion investment, was "sustainable, affordable and keeps downward pressure on fees".

Tax professor Miranda Stewart from the Melbourne University Law School is an expert in the interaction of tax, welfare and work incentives.

She is frustrated by the incremental nature of policies to address work–life balance since 2001, when John Howard called it a "barbecue stopper" issue.

She would prefer an overhaul of the system, including more paid parental leave, especially for fathers, to encourage men and women to share care and work more evenly.

The benefits of doing so would flow directly to families, to the overall economy and to women who lose skills and opportunities when they spend time out of the workforce, Professor Stewart said.

Women have traditionally worked less than men and their superannuation balances reflect that. They are currently retiring with 42 per cent less than men.

"The Government's childcare subsidy is just not covering enough of the childcare cost for women in low- and medium-income households to move from part-time to full-time work," Professor Stewart said.

"They're losing that benefit and it's a kind of effective tax rate on them."

The ABC contacted the Government for comment but has not received a response.

Topics: federal-elections, elections, government-and-politics, business-economics-and-finance, child-care, australia

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