Australia’s virus-induced recession is like no other economic crisis our nation has faced: fast and brutal, it has caused more women than men to lose their jobs. In previous recessions, men have borne the brunt of job destruction. But women have been at the front line of the CoronaCrisis. Nurses and allied workers should collectively be proclaimed Australians of the Year for risking their health and that of their families by treating virus sufferers.
Mothers have cared for their children, continuing their education when schools have closed. Just as women have played such a prominent role in leading us through the crisis, they can lead the economic recovery too. If only we don’t stand in their way.
To the federal government’s credit, it moved quickly to provide free childcare through its Early Childhood Education and Care Relief Package. It has enabled most childcare centres to keep their doors open while giving fee relief to working mothers. But the welcome relief package is scheduled to end on 28 June.
From end-June, the childcare system is expected to flip back to the pre-existing Child Care Subsidy. While an improvement on the jumbled system it replaced, the Child Care Subsidy contains punishing disincentives for working mothers to increase their hours of work. Just when women are hoping to repair damaged household budgets by working an extra day or an extra shift, they are deterred from doing so.
Indeed, at a time when the government is rightly looking for reforms to boost national productivity to strengthen the economy and help pay down debt, highly productive, university-educated women are confronted with work disincentives that make the 47-cent marginal personal tax rate faced by well-off men look positively generous.
Consider a few examples. A mother earning the full-time equivalent of $100,000 per annum, whose spouse is also earning $100,000 per annum, would take home an extra $13.70 an hour from increasing her working days from three to four per week. That’s 30 per cent below the minimum wage.
It gets worse. If the same mother were to increase her working days from four to five per week, the household would go backwards by $11.50 for every extra hour she worked. Her extra day’s work would reduce the family’s income by $86.25.
Why, as a society, should we want to punish a professional woman from working extra hours?
Lest this be interpreted as elitist bleating, let’s look at a couple earning the minimum hourly wage. If the father is working full time and the mother tried to boost their modest household budget by increasing her working days from four to five per week, she would take home $3.40 an hour.
At a time when business and unions are debating whether or not the minimum wage should be raised above $19.49 an hour, we tolerate a situation where some working mothers take home as little as $3.40 an hour.
These powerful work disincentives for working mothers can be found up and down the income scale. They are caused by a nasty combination of the mother’s marginal personal tax rate, the withdrawal rates for Family Tax Benefit and Child Care Subsidy and the extra out-of-pocket expenses on childcare. When you put all these together, you get what has come to be known from KPMG analysis as the Workforce Disincentive Rate.
Typically, Workforce Disincentive Rates for women can range from 75 per cent to 120 per cent, compared with men’s top personal tax rate of 47 per cent.
Any men who regard this as a fringe issue being prosecuted by radical feminists might reflect on the fact that women now make up almost half of the Australian workforce and more than half of Australia’s population. That’s right, fellas, you are now a minority group and childcare is a mainstream economic and social issue.
The government is aware of some of the most pernicious Workforce Disincentive Rates confronting women. The COVID-19 crisis presents an opportunity for reform of the Child Care Subsidy. An ideal system would be near-universal.
Labor has traditionally supported means testing of income support programs. Yet Labor introduced two historic reforms that are not means tested: Medicare and the National Disability Insurance Scheme.
An opportunity is available now for the federal government to extend the life of the childcare relief package for a few months while accommodating the legitimate concerns of childcare providers. In the meantime, the government should undertake a review of the Child Care Subsidy to flatten out the disincentives for working mothers to contribute to their household budgets and national productivity. If ever there was an time for gaining bipartisan support for an essential reform of the childcare system, that time is now.
Craig Emerson is managing director of Craig Emerson Economics, a Distinguished Fellow at the ANU, an Adjunct Professor at Victoria University’s College of Business and Director of the APEC Study Centre at RMIT.