Australian workers, mainly women, suffer from perverse tax disincentives when they pay for childcare. For many they’re not just copping a higher rate of tax than our highest-paid corporate titans, they’re paying to go to work.
“It’s massive,” said Professor Patricia Apps University of Sydney Law School. “If they go beyond part-time they basically get almost no income.”
Access to childcare is a family problem, but the economic burden tends to fall to women. That’s because the gender pay gap means women generally earn less than their male partners. This makes them the ‘second earner’ and facing a rising tide of reasons to not work.
The more days they work, the more childcare they need and the more the disincentives grow. Rising income tax, reducing family benefits and expiring rebates mean it’s not long until many parents are essentially paying to go to work. Given that equation – and the difficulty of finding part-time or flexible work – many drop out of the workforce.
“Mothers who are second earners facing the highest marginal tax rates in the country,” Professor Apps said. The top tax rate, paid by people earning above $180,000, is 45 per cent. Add in the Medicare levy and the marginal tax rate hits 47 per cent. “They’re facing a marginal tax rate there is a well above the top rate on top incomes. It’s in the order of 60 to 65 per cent.”
None of this surprises government worker Kate Olivieri.
“For our little family – we have just one child – but honestly it’s more than our mortgage payment,” she said. “It’s such an unbelievable amount.”
With her husband, the Lismore-based mother of Albert pays $500-a-fortnight in childcare fees, after rebates. Working more – a fifth day a week – doesn’t work.
“We actually did some sums and worked out that after paying five days of childcare… we worked out that will be only $24 a fortnight better off.”
As a result her husband, the ‘second earner’, has dropped back to four-days a week. With that impact replicated across the country, it has wide-ranging impact for workers – and the economy.
“Secondary earners are looking at our removal of around 90-cents in the dollar if they go from working three days to four days,” said Professor Rebecca Cassells, deputy director of the BankWest Curtin economic centre. “Working that fifth day? Well it’s not even worth working at all.”
COVID crunches women
Before COVID hit the percentage of our workforce made up by women was at a record high, 47 per cent. The gender pay gap – the difference between women’s and men’s average weekly full-time earnings – was at record low.
But the COVID-powered recession has cost women jobs and hours at a much greater rate than men. Experts fear measures announced in the Budget won’t shift the dial.
In the Budget, the government revealed its Women’s Economic Security Statement, costing $240-million over five years. It identified key areas to work on, including repairing women’s workforce participation, closing the gender pay gap, giving “choice and flexibility for families to manage work and care” and supporting women’s safety.
Minister for Women Marise Payne said the statement, coming off the back of 2018’s inaugural document, would use data, “analysis about gender impacts” and women’s experiences to inform its approach.
“Together, we can create lasting change. And, in doing so, we must not settle for what is good enough,” she wrote. “We must have the ambition to aim for what is best.”
But the lack of support for women has infuriated Equity Economics lead economist Angela Jackson.
“It was an insult, and I think that’s probably how Australian women felt – we felt insulted,” she fumed. “We’ve borne the brunt of this recession and yet we have been provided no support in terms of getting back to work and working to help that recovery.”
The money backing the statement is less than is being spent on upgrading the previously mentioned train signals between Shepparton and Melbourne in Victoria ($320M) and subsidising air freight for exporters ($317M) and only slightly more than the $200-million for “township improvements” and road upgrades for Hahndorf – population 2,670 –just outside Adelaide in South Australia.
“We came in knowing that the economic recession caused by COVID had disproportionally impacted women and we expected the Government would respond with jobs and with a huge investment in childcare,” Ms Jackson added. Instead, direct support for industry sectors went to parts of the economy – such as construction – dominated by men.
“It tells me that the Government hasn’t looked at the statistics and hasn’t looked at the gendered impact of this recession.”
Childcare unlocks productivity
The government’s statement, and the $240-million backing it, is a “great recognition” of the problems facing Australian women, according to director of consulting firm KPMG’s Australian Geopolitics Hub Dr Merriden Varrall.
“But it does miss the core thing in producing an economic recovery, and that’s unlocking women’s workforce participation.,” she said. And it doesn’t deal with the biggest barrier to getting more women into the workforce: “That is, of course, childcare”.
Australia funds childcare at a rate less than half a per cent of our gross domestic product (GDP). That’s much less than similar countries. The United Kingdom spends 1.1 per cent of the value of what it produces on childcare, New Zealand 0.8 per cent. Australia spends half what our Kiwi cousins do, and it means families pay much more out of their own pockets.
Then the tax system penalises families further.
“The bottom line is that what’s required is a huge boost to productivity. And you can get a massive boost to productivity by increasing women’s workforce participation.
Childcare is problem for families. But it cost women even more, due to ‘second earner’ problem.
“It’s a huge impediment to going to work, because of the way childcare and the tax system is structured,” Dr Varrall added. “”The impact is immediate, but also long-lasting, long-term.”
That’s because pushing women out of the workforce, or to fewer days, has a lifetime impact on their earnings and superannuation.
“The Treasurer was very upfront in the Budget, it’s got to be about jobs. But jobs in Australia are very divided along gender lines, and the sectors most supported (like construction) are male-dominated. Sectors dominated by women, like retail and hospitality haven’t had the same stimulus applied to them”
The Opposition has promised to boost support for childcare if elected.
For families like Albert, Kate Olivieri and her husband, the cost of childcare also impacts if they’ll add to their family.
“Certainly we never planned for Albert to be an only child, but at some point you absolutely have to take that cost into account,” she said. “And it’s just not right that you have to think that – you can’t think what you what you want and what is right for your family first.”