Reform of the Child Care Subsidy would ease cost-of-living pressures for working families
It’s not the size of the spend that counts, it’s the quality. Yet federal budgets over the last few years have been dominated by expensive, low-quality spending that ministers and their staff assess as offering large political dividends with little or no regard for economic benefits.
Car parks at railway stations had undergone no economic cost-benefit analysis but were colour-coded in ministerial offices for location in Liberal electorates https://www.afr.com/politics/federal/frydenberg-jettisons-dodgy-car-park-promise-amid-local-backlash-20220302-p5a15r. North Sydney Pool received a $10 million refurbishment from a regional development program.
Despite scandal upon scandal, the Morrison government in its December mid-year fiscal update squirrelled away an election war chest of up to $8 billion in decisions taken but not yet announced – in case it called an election before the budget.
Will these projects be disclosed in this week’s budget, or will they remain hidden for unveiling during the election campaign, which could start at week’s end?
While busily pouring billions into pork barrels, the Morrison government has all but shunned a high-quality spend – reform of the Child Care Subsidy.
Reducing the punishing workforce disincentives inflicted by the Child Care Subsidy would increase both workforce participation and productivity, which together explain all the increase in the material living standards of Australians since federation https://www.pc.gov.au/research/ongoing/productivity-insights/long-term/productivity-insights-2020-long-term.pdf
Greater government support for families with childcare costs would also ease cost-of-living pressures for working families.
Yet the Morrison government continues to attack Labor’s childcare policy for being too generous to better-off families. Restricting its own Child Care Subsidy changes in the last budget to families with two or more children under the age of six, the government’s policy still produces workforce disincentive rates as high as 120 per cent.
This means that, after taking account of personal income tax, loss of family tax benefit and Child Care Subsidy, plus out-of-pocket childcare expenses, a mother can take the family budget backwards by working more than three days per week.
Among the women facing these horrendous workforce disincentives are highly educated, highly productive holders of university degrees.
It is insane that when women constitute 58 per cent of university graduates each year, the Morrison government has devised a policy that penalises mothers for working more than three days a week.
The economic and social absurdity of the government’s Child Care Subsidy can be explained only if the Morrison cabinet considers the payment not an economic investment but a welfare handout.
And that’s exactly its view https://www.afr.com/politics/federal/morrison-attacks-labor-s-childcare-policy-as-too-generous-for-the-rich-20201009-p563k9
The Morrison government’s childcare policy is a hangover of the view that a woman’s place is in the home looking after the kids and preparing meals for hubby when he comes back from work.
Labor’s Child Care Subsidy reform ticks all three boxes: increased workforce participation, increased productivity and decreased cost of living.
So too does the paid parental leave scheme introduced by the previous Labor government. Extending paid parental leave from 18 weeks to 26 weeks, with incentives for sharing of leave between mother and father, would constitute a further valuable economic reform.
And adding the superannuation guarantee to paid parental leave would help reduce the large superannuation gap between women and men.
Did you know it’s unlawful for employers to offer higher superannuation contributions to female employees in recognition of the time they are obliged to take out of the workforce raising children? Exemptions can be obtained but it takes around two years to get them.
A simple law change would fix that silliness.
Budget policies that facilitate productivity-raising economic reform should be prioritised over those designed for purely political purposes. We need to return to the days when, as Bob Hawke famously said, “good policy is good politics.”
Neither major party has developed a comprehensive program for productivity growth to create a strongly growing economy, but at least Labor is presenting individual policies capable of lifting productivity growth.
They include a reformed Child Care Subsidy, a revamped TAFE training policy and support for Australia’s energy transition.
As identified by the Productivity Commission and the latest intergenerational report, Australia’s two biggest long-term economic challenges are weak productivity growth https://www.pc.gov.au/inquiries/current/productivity/call-for-submissions/productivity-inquiry-call-for-submissions.pdf and an ageing population https://treasury.gov.au/publication/2021-intergenerational-report
Far from being a welfare handout to rich women, a universal Child Care Subsidy and associated reforms to paid parental leave would directly meet both these challenges, confirming that it’s the quality of the spend that counts.
Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, a visiting fellow at the ANU and adjunct professor at Victoria University’s College of Business.