“Radical plan” to boost economy would drive down wages

KMPG argues Australia’s tax and transfer system needs a revamp so more secondary earners in a family (usually women) can get back to work. Their proposal looks at changing the child care subsidy rates for long-day care, and giving “top-up” payments. It says this could generate an extra $678 million in economic activity a year, at a cost of $368 million in extra child care subsidy spending. From The ABC:

Imagine you could generate 30,000 additional workdays per week for the economy by getting mums at home back into work.

This is what accounting and consulting firm KPMG is proposing, as part of what it calls a “radical plan” to revamp Australia’s Child Care Subsidy system…

At the moment, married women with children are disadvantaged by Australia’s tax and transfer system in two main ways.

Firstly, most welfare subsidies are based on household income, not single income.

That means if married women (or men if the man is the primary carer) decide to move from three or four days a week to full-time work, they lose out.

The proportion of every extra dollar they earn lowers after taking account of additional income tax paid and loss of family payments (something known as the effective marginal tax rate).

The second main reason is a woman’s (or man’s if he’s the primary carer) ability to participate in the workforce is usually wholly dependent on her ability to acquire childcare.

But again, childcare subsidies taper off, based on household incomes.

KPMG combines these two quirks of Australia’s tax and transfer system to call it the “workforce disincentive rate”…

This means a family is actually worse off when the second earner in the family works additional hours…

KPMG’s preferred option is that the Federal Government cap the workforce disincentive rate at the secondary earner’s — usually a woman — marginal income tax rate, plus 20 percentage points.

This would be done via a “top-up payment” through the child care subsidy system, but higher earners’ top-up payments would be capped at $10,000…

Mr Wardell-Johnson said the proposal would provide an economic benefit that is almost twice the additional cost in extra government spending that would be required to make the policy change.

“Our economic modelling in this report shows the proposals would generate an additional $678 million — using conservative assumptions — at a cost of $368 million in extra CCS spending,” he said…

In 2017, female workforce participation lagged that of males by 10 percentage points (72.9 per cent versus 82.8 per cent).

It’s an interesting proposal. But there’s is a major problem with it: it would drive down wages.

Remember, the RBA has blamed Australia’s poor wage growth on rising labour force participation rates:

According to governor Phil Lowe:

RBA governor Philip Lowe said in a speech last week that the surge in participation was a “positive development,” but it also meant it had become “quite difficult to generate a tight labour market with the flow-on consequence that wage increases remain subdued.”

For example, the higher number of people in the workforce has meant that even though the economy has created about 600,000 new jobs in the past two years, the unemployment rate has more recently been edging up, in part because of all the extra available workers.

Thus, raising female participation would only add to the spare capacity in the labour market and help drive wage growth even lower.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Latest posts by Unconventional Economist (see all)

Comments

  1. macrofishMEMBER

    I mean they could kill off the pop ponzi at the same time and it would work… but who are we kidding.

  2. Australia needs to accept the fact that it is no longer a first world country. Our roads, hospitals, schools, universities and Internet are all declining quickly. Our government is corrupt. Voices of dissent and whistle-blowers are silenced, our media is suppressed. We live in a surveillance state.

    We can no longer afford to have the highest minimum wages in the world.

    Wages are set by supply and demand. There are too many people and not enough jobs – wages have to fall. They will fall more for some than for others.

    • I suggest you get out of the tourist areas in the nations you think compare positively to Australia.. you will see no different/much worse. Australia is a first world nation being sold down the river by a very small few who benefit from the population ponzi and their media boosters and “anti-racists” who believe to have a sustainable White population is a crime worse than genocide (as it is genocide it delivers).

  3. There are a lot of lazy children out there that could do their bit for the economy too, so long as wages are right-sized for them first.

    • Great idea, we could all do out part to help the ailing mining industry and have them clean our chimneys after we resume burning coal to heat our houses…

  4. How about creating a nationally funded public child care system available at every primary school? Construction jobs and activity, decent pay and conditions for childcare workers (who are almost certainly victims of wage fraud like every other migrant heavy workforce), guaranteed good meals for all kids, more jobs created in the process as the number of people who could afford to use childcare balloons, and doubles as before and after school care for parents who can’t work a 9:00 to 2:30 school day (FFS).

    • Whilst I’d ordinarily support what you say as a good idea (perhaps free school-hours kindergarten for all 4 years and over) it has to be balanced with the realisation our schools have become progressive indoctrination centres.
      Keep politics and multicult & LGBTQI propaganda out of schooling entirely and it is supportable.

      • Until we get religion completely extracted from the school system where any level of public funding is present I think it’s a bit rich to mention anything else, don’t you? Personally I see none of this propaganda you’ve brought up. Don’t like conspiracy theories much myself.

    • But then bloodsucking corporate childcare providers wouldn’t be able to extract rents from the community.
      And think of all the mate$$$$ who are attached to this industry who need looking after.
      That this industry exists on the back of public subsidy is an example of institutional corruption.

    • Because that’s commie talk, son. How are good honest capitalists supposed to make any money out of that ?

  5. Perhaps the barrier to females not working more is not access to childcare but because families want to raise children themselves rather than outsourcing to a rotating bunch of fresh graduates. The focus should be on reducing family working days not increasing.

    • Well said. Without the (imported) population ponzi housing would be so much cheaper a second income wouldn’t even be necessary.

  6. This is all just spruik for more subsidies for bloodsucking corporate childcare clients of KPMG. Here is how I think it goes:
    1) Bloodsucking corporate childcare provider wants more profit from bigger government subsidies
    2) Bloodsucking corporate hires KPMG for consulting services to write a report advocating increased subsidies
    3) Bull*rap PR campaign run on the basis of KPMG says.

    No more than parasitic rent seeking… It should be ignored.

  7. It should be illegal for both parents to work if they have a child under 10. It is not a lack of child care that is the problem, it is economists that measure a positive outcome as an increase in GDP rather than an increase in the quality of life.