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.