As we look to rebuild the Australian economy, affordability of child care looms as one of the key factors in parents’ ability to secure their desired place in the workforce.
Parents of young children who want to contribute more to household income too often find themselves considering an insufficient financial reward when taking on extra work, once out-of-pocket child care costs are deducted. This occurs across all family income levels. In particular, it is currently women’s workforce participation that suffers most when child care is unaffordable.
KPMG Australia (KPMG) believes there are also considerable long-term benefits for our society of transitioning to near fully-funded child care for children under the age of five (that is, a subsidy for all such children of 95 percent of the current hourly rate cap). This transition can involve interim steps which progressively improve parents’ situations.
These benefits include the social and cognitive development of the children themselves, the scope for both parents to take on as much work as suits their circumstances during the child care years, and the increased career-long productivity of those parents from having had the ability to strengthen their engagement with the workplace and with professional development opportunities during the child care years.
There are also non-financial factors including availability, flexibility and quality that influence a family’s decision on whether to access additional child care services in order for a parent to be able to take on work opportunities. This paper does not explore these factors.
KPMG has estimated that the annual benefit to gross domestic product (GDP) from increasing the federal government child care subsidy (CCS) to a near fully funded 95 percent of the current hourly rate cap (Option 1 in this paper) could exceed the additional CCS expenditure (net of additional income tax receipts) by almost 40 percent.
The additional CCS expenditure (net of additional income tax receipts) is estimated to be $5.4 billion, and the annual GDP benefit is estimated at up to $7.5 billion.
There would be a further cumulative benefit to GDP which arises from the increased productivity of these parents over the longer term. KPMG has estimated that over 20 years this could grow to $10 billion.
Recognising the extent of this additional CCS expenditure relative to the current budget position, we have explored the possibility of an interim measure which, while retaining the ultimate goal of achieving Option 1, would allow the government to alleviate many families’ situations at less cost.
This measure (Option 2 in this paper) involves the elimination of per-child subsidy caps, an increase in the maximum subsidy for the lowest income families, and also involves every child attracting some federal government subsidy for child care, which is not the case currently.
We estimate that the GDP benefit of this measure could exceed the additional CCS expenditure (net of additional income tax receipts) by more than 110 percent.
The additional net CCS expenditure for this measure is expected to be $2.5 billion, and the annual GDP benefit, arising from the extra days worked in response, is estimated at up to $5.4 billion.
The cumulative GDP benefit of individual productivity enhancement arising from Option 2 over a 20-year period is estimated at $7 billion.
The Parent Equality Model, which we have been advocating for some time, envisages parental responsibility being fairly divided over the long term, with parents sharing work and caring responsibilities differently at different times, each making active choices about the appropriate balance. There are considerable economic benefits that would flow from the Parent Equality Model as well as greater personal well being.
Implementing Option 1 would support the achievement of this goal. It would allow both parents to explore their potential as much as they can and want to, without being inhibited by the financial considerations of paying for incremental child care costs.
Unfortunately, we currently remain far away from a Parent Equality Model.
The unequal share of care responsibility that currently is borne predominantly by women can have adverse consequences. Their needs and ability to reach their capabilities, can get left behind and become absorbed in those of the family. Women have also suffered a substantial long term disadvantage in terms of ownership of assets, capacity and superannuation savings.
We discuss how changes to the child care subsidy could help cut Australia’s workforce participation gap between men and women.
Proposals to help cut Australia’s workforce participation gap between men and women.