Why Child Care Subsidy Reform Would Increase Labor Market Participation and Productivity

Reducing the punitive labor force disincentives inflicted by the childcare subsidy would increase both labor force participation and productivity, which together account for all of the increase in living standards. equipment of the Australians since the federation.

Increased government support for families with childcare costs would also ease cost of living pressures for working families.

We need to go back to the days when, as Bob Hawke so aptly put it, ‘good politics is good politics’.

Yet the Morrison government continues to attack Labour’s childcare policy for being too generous to wealthy families. Limiting its own changes to the childcare subsidy in the last budget to families with two or more children under the age of six, the government’s policy still produces workforce disincentives of up to 120 %.

This means that after taking into account personal income tax, loss of family tax benefit and childcare subsidy, as well as childcare costs, a mother can reduce the family budget by working more than three days a week.

Among the women facing these dire disincentives to work are highly educated and highly productive college graduates.

It is insane that, when women make up 58% of university graduates each year, the Morrison government has devised a policy that penalizes mothers for working more than three days a week.

The economic and social absurdity of the government subsidy for childcare can only be explained if the Morrison cabinet sees the payment not as an economic investment but as social assistance.

And that is exactly his point of view.

The Morrison government’s childcare policy is a hangover from the idea that a woman’s place is at home to look after children and prepare meals for her husband when he returns from work.

The Labor Party’s childcare subsidy reform ticks all three boxes: increased labor market participation, increased productivity and lower cost of living.

The same goes for the paid parental leave scheme introduced by the previous Labor government. Extending paid parental leave from 18 weeks to 26 weeks, with incentives to share the leave between mother and father, would be another valuable economic reform.

And adding the pension guarantee to paid parental leave would help reduce the large pension gap between women and men.

Did you know that it is illegal for employers to offer higher pension contributions to female employees in recognition of the time they are forced to take out of the workforce to raise children? Exemptions can be obtained, but it takes about two years to obtain them.

A simple change of law would correct this stupidity.

Fiscal policies that facilitate economic reforms aimed at increasing productivity should take priority over those designed for purely political purposes. We need to go back to the days when, as Bob Hawke so aptly put it, “good politics is good politics”.

Neither major party has developed a comprehensive productivity growth agenda to create a high-growth economy, but at least

The work presents individual policies capable of boosting productivity growth.

They include a reformed childcare grant, 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 greatest long-term economic challenges are low productivity growth and an aging population.

Far from being welfare support for wealthy women, a universal childcare allowance and associated paid parental leave reforms would directly address both of these challenges, confirming that it is the quality of spending that matters.

Craig Emerson is Managing Director of Emerson Economics. He is Director of the Center for APEC Studies at RMIT University, Visiting Scholar at ANU and Adjunct Professor at the College of Business at Victoria University.

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