Federal budget boost to parental leave, childcare could lift women’s workforce participation
In 1971 a High Court judge said that the cost of childcare for a single mother was not a deductible tax expense.
The judge acknowledged that the woman couldn’t work without childcare and that the expenses were, but he didn’t believe it was incurred in the process of earning income.
For Alex and Emilia Bachem the idea that childcare isn’t seen as a cost of working, or that at least prohibits people from being able to return to full-time work, is strange.
When the couple had their first child, Leo, two years ago, they made a decision few families make: Alex would be a full-time stay-at-home dad.
Emilia, a fashion buyer, took the first 10 months off (some of that leave paid by the government and the rest unpaid).
Then, Alex, marketing manager at Loreal, took 14 weeks paid leave from his employer.
“I realised that this was my biggest priority in life, you know, being there for him and having that time with him,” Alex says.
“Of course, you might have certain stigmas around, what does that mean for your career and things like that, but, for me, that was secondary, because the primary priority was really spending that time.
“I’m really happy that I did.”
The couple have a second child on the way, and once again they plan to share the role of staying at home to raise their child.
“I love my job,” Emilia says.
“I think it is a really nice balance to be with your child at home, but to also be able to work. To, you know, speak to people, and not only [have] baby talk.
“It [child raising] is really hard work. And so for me, to be honest, going to work was my free time. And I think it’s really important to give the chance for dads to see how difficult it is.”
Just 1 in 20 fathers take primary paid parental leave
Despite some companies offering dads generous paid parental leave, statistics show just 1-in-20 Australian fathers take primary parental leave.
Australia’s taxpayer-funded paid parental leave policy of 18 weeks for mothers and two weeks for fathers puts the country behind a number of other OECD nations.
In some countries, parents are paid to take 55 weeks off, with the leave often split more equally.
“It [Australia’s parental leave offering] is not really such a big support, to be honest,” Emilia says, noting she’s originally from Poland and Alex is from Germany, where both parental leave and childcare incentives are more generous.
“The biggest issue here [in Australia] is that childcare is very, very expensive, and sometimes you think, ‘Oh, if I go to work, and I send my child to the childcare is this worth it?'”
“I think that’s why a lot of women – from what I experienced with my friends from mothers’ group — do part time jobs.”
According to a Grattan Institute study of 35 countries, those with more generous parental leave did not necessarily achieve a more equal division of household labour, but nations with paid leave reserved for fathers did.
It found that fathers are more likely to use the leave when policies offer an individual ‘use-it-or-lose-it’ entitlement for an extended period (more than two weeks) and with high income replacement (50 per cent or more of earnings).
Paid parental leave for dads a ‘game changer’
This is why Tina Samardzija wants to see a change to policies that takes pressure off both parents and give incentives to women to return to work.
Tina and her husband Blake Sabo both took time off work when their kids, Ivan (5) and Mila (2) were born.
Tina, who works in the Victorian public service and as a counsellor, took the first six months after giving birth off, through a combination of paid government leave and work leave.
Blake, who works in the federal public service, had to dip into his annual leave and long service leave to manage.
“Any policies that have some kind of paid component for fathers would be beneficial because you’d see that shifting of incentives for men to take that leave,” Mr Sabo says.
Ms Samardzija says they “definitely were not the norm”.
“Blake’s role as a parent to our children wasn’t recognised like mine was,” she says.
“It’s just really surprised me how much in the minority we are that not many other men take up this opportunity to look after their kids and it’s a real shame.”
She says more generous parental leave for the fathers would be a “big game changer”.
“It’s the one that’s going to change those entrenched cultural barriers to men taking off that time to care for their children in that first year of life,” she says, noting that currently decisions about when to return to work and how often are ones that women mostly struggle with.
“And it just has lifelong repercussions for — not just the woman’s working situation — but the way that kids grew up with their mum and dad, and how we live as a society and the expectations that are placed on the mum and the dad.”
A $140b plan to lift living standards
In the lead-up to the federal Budget, business and social welfare groups are calling for changes to paid parental leave and childcare subsidies that allow more women to return to work.
According to KPMG modelling, halving the workforce participation gap between men and women could increase economic growth by $60 billion over 20 years and deliver a $140 billion lift in living standards by 2038.
A KPMG and Business Council of Australia proposal put to the federal government ahead of next Tuesday’s Budget suggests offering 26 weeks paid parental leave.
Parents who split caring evenly would get an extra two weeks off.
KPMG and the BCA also suggested lifting the childcare subsidy from 85 per cent to 95 per cent for anyone earning up to $80,000.
“And for incomes that are at a higher level, we’d like to see a straight line tapering off, rather than what happens at the moment, which is when you hit certain trigger points, the subsidy gets withdrawn in total,” KPMG national chairman Alison Kitchen says.
It would mean a family earning $80,000 would get a 95 per cent subsidy, while a family earning $84,000 would get a 94 per cent subsidy and so on.
“For a fairly modest cost of about $2.5 billion a year, we can generate an extra $4 to 5 billion in economic activity per year,” Ms Kitchen says.
KPMG’s proposal is slightly different to the federal government’s latest $1.7 billion Budget plan announced on Sunday, which only increases the subsidy for the second child and involves no tapering for those on higher incomes.
KPMG also suggests including super in parental leave payments and allowing employers to make higher superannuation contributions for their female employers if they wish to do so.
Ms Kitchen says if all its proposals were applied across the board the economic benefit would be massive.
“That’s why this is not, absolutely not, welfare.”
Shifting workforce patterns
More Australian women are working, but part-time work is the norm for women with children.
According to a report from the Grattan Institute, the average woman with pre-teenage children works 2.5 days a week.
Childrearing remains the most important explanation for the gap in labour force participation between women and men.
Australia’s workforce participation rates dip for women in their early 30s — the most common age for women to have their first child – and bounce back after women reach 40.
Grattan Institute chief executive Danielle Wood says Australia has some of the best trained women in the world but that they need to be given financial incentives to work more hours.
“We have a huge lifetime gender pay gap between men and women that have children — about $2 million over their lifetime,” she notes.
“Shifting those patterns, encouraging more women into the workforce, will actually help close that gender pay gap and improve women’s economic security.”
Removing barriers to work
Currently there are several barriers to Australian women with children participating in the workforce or increasing their hours of paid work.
These include high childcare costs and the poor financial payoff from taking on more paid work.
“We shouldn’t underestimate the extent to which policy can lead culture, when you create an incentive for men to stay home in those early years,” Ms Wood says.
She says Australia spends a lot less on the childcare subsidy and paid parental leave than most other OECD nations.
“For many women, they’re working part time, they’ve got children in care, what you find is that when you add in tax, the clawback of welfare benefits and those out-of-pocket childcare costs, they’re losing 80/90, even 100 per cent of their additional income from going three to four or four to five days a week,” Ms Wood says.
“So, for many women, it’s just not attractive to work for free or close to it.”
Grattan’s proposal on paid parental leave is slightly different to that of KPMG. It advocates having paid leave at six weeks for each parent, then 12 weeks that can be shared between them.
“That would cost about $600 million a year, on top of about the $2.3 billion that the government currently spends on parental leave,” Ms Wood says.
Australian Council of Social Service (ACOSS) chief executive Cassandra Goldie also says Australia has one of the most segregated profiles when it comes to participation in paid work and unpaid caring responsibilities.
She supports Grattan’s policies on childcare and parental leave, but stresses that there needs to be an adequate safety net for lower-income women who are out of paid work often in caring responsibilities.
Dr Goldie also suggests ditching the third stage of income tax cuts which predominately benefit higher-income people, especially men.
“Right now, we’ve got the government spending about $2 billion in tax cuts per month (across stage 2 and 3) — and of course, we know that the majority of the benefits of tax cuts are going to higher income men.”
Call for tax deductible childcare
Some groups are going even further, calling for tax deductible childcare.
Ann O’Connell is a professor at Melbourne Law School specialising in taxation. She’s had input into a Victorian Bar Budget submission calling for tax deductible childcare.
It proposes that there be a deduction for childcare capped at $60,000 per family, and that taxpayers have a choice between the existing subsidies for childcare and claiming a tax deduction.
There’s been criticism in the past of proposals to make childcare tax deductible, as it benefits higher income women and that the money could be better spent helping women in low incomes.
Professor O’Connell says, while their proposal would encourage higher income women back into the workforce, that is exactly who you want to return to the workforce to help boost economic growth.
“One of the results of not having a deduction is this lower participation rate,” she says.
“And criticising the deduction as being of benefit to high income women mistakes the fact that all tax deductions work that way.
“We don’t want a welfare measure. We want a measure that recognises childcare is a cost of working.”
Professor O’Connell says if there is no traction on their budget proposal, she and others are exploring the possibility of challenging the 1971 High Court decision.
“[We] will argue that the test that was applied 50 years ago, is no longer relevant, and that there are now many expenses that you can claim that are not incurred in earning your income,” she says.