Childcare costs keeping parents out of work and hurting the economy
Kate Olivieri and her husband know only too well the cost of child care in Australia.
“For our little family — we have just one child — but honestly it’s more than our mortgage payment,” said the government worker. “It’s such an unbelievable amount.”
The Lismore-based mother and her husband pay $500 a fortnight in childcare fees, after rebates, for their son Albert.
Ms Olivieri says Albert goes to child care four days a week because the fifth day does not make financial sense.
“We actually did some sums and worked out that after paying five days of child care … we worked out that will be only $24 a fortnight better off,” she said.
As a result, her husband, the “second earner” on a salary less than hers, has dropped back to four days a week so he can look after Albert and save a day of childcare costs.
Replicated in thousands of households across the country, it has far-reaching 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.”
“It’s massive,” said Professor Patricia Apps from the University of Sydney Law School. “If they go beyond part time they basically get almost no income.”
Access to child care is a family problem, but the economic burden tends to fall on women.
That is because, unlike Ms Olivieri’s family, the gender pay gap means women generally earn less than their male partners. This makes them more likely to be the second earner and face a rising tide of reasons to not work.
The more days they work, the more child care they need and the more the disincentives grow.
Rising income tax, reducing family benefit payments and hitting childcare rebate caps mean it is 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 altogether.
“Mothers who are second earners are 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.”
Anger over Federal Budget
In the Federal Budget, the Government revealed its Women’s Economic Security Statement, showing policies 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.”
However, the relative lack of support for women compared to infrastructure spending or general tax breaks 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 said.
“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.”
Initial job losses during COVID-19 were heavily concentrated in hospitality as well as arts and recreation, areas with a high concentration of female workers, a trend that has subsequently reversed as the recession has dragged on.
“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 child care,” Ms Jackson added.
Instead, direct support for industry sectors went to other parts of the economy — such as construction —
“It tells me that the Government hasn’t looked at the statistics and hasn’t looked at the gendered impact of this recession.”
Child care 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 Merriden Varrall.
“But it does miss the core thing in producing an economic recovery, and that’s unlocking women’s workforce participation,” she said.
Adding that it does not deal with the biggest barrier to getting more women into the workforce: “That is, of course, childcare.”
Australia funds child care at a rate less than half a per cent of the nation’s gross domestic product (GDP).
That is much less than similar countries. The United Kingdom spends 1.1 per cent of the value of what it produces on child care, New Zealand 0.8 per cent.
Then the tax system penalises families further for earning extra income.
“The bottom line is that what’s required [for the economy to recover] is a huge boost to productivity. And you can get a massive boost to productivity by increasing women’s workforce participation,” Dr Varrall said.
“It’s a huge impediment to going to work because of the way child care and the tax system is structured.
“The impact is immediate, but also long lasting, long term.”
That is because pushing women out of the workforce, or to fewer days, has a lifetime impact on their earnings and superannuation, as well as their career progression.
“The Treasurer was very upfront in the Budget, it’s got to be about jobs,” Dr Varrall said.
“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.”
At a time when low population growth will also be a drag on economic growth, for families like Ms Olivieri’s, the cost of child care also affects if they will grow.
“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 can’t think about what you want and what is right for your family first.”