News article - There is a better way to help mothers return to paid work

Although I do think there are several positives about Tony Abbott's paid parental leave scheme, and think that the current one in place does not go far enough - I agree with this article that solving the paid parental leave problem is only a very small part of helping mothers return to paid work and that childcare is really what needs addressing - the freezing of the CCR at $7500 till 2017 - shows that seems that neither party really seem to want to do anything to solve that.

I have bolded the bits find particularly interesting.

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There is a better way to help mothers return to paid work

If Tony Abbott is serious about wanting to boost women's workforce participation, there are more effective and less expensive ways to do it than via his paid parental leave scheme, which has been costed at $5 billion a year by the Parliamentary Budget Office.

''Paid parental leave is an important economic reform, very important economic reform, that will boost participation and productivity,'' the Opposition Leader said this week.

Actually, Mr Abbott, no it won't. Or at least not nearly as much as other measures, ones that are needed by women much more and for far longer than the first six months after the birth of their babies.

I am talking about childcare.

There is plenty of high-calibre research on the reasons - and the remedies - for women failing to return to work after they have babies. For instance, Game-changers: Economic reform priorities for Australia, released last year by the Grattan Institute, devotes a chapter to the overall economic benefits to Australia of lifting our currently woefully low, by OECD standards, rate of workforce participation by women. According to this report, if Australian women did as much paid work as women in Canada - which would entail an extra 6 per cent of women in the workforce - our GDP would be boosted by $25 billion. (Think what that would do for the budget bottom line.)

The research shows that the two major factors influencing female workforce participation are marginal tax rates and the net costs of childcare. Canada's female workforce participation ''increased substantially above trend levels when [in 1997] marginal taxes and the net costs of childcare were reduced''.

Paid parental leave is a factor, of course, but it is not nearly as crucial as Abbott seems to think. In fact, international experiences suggests, according to the Grattan Institute, that ''government support for childcare has about double the impact of spending on parental leave'' in influencing women's workforce participation.

This makes perfect sense. The availability and cost of suitable childcare is a continuing parental nightmare and for many families is the tipping point for deciding whether or not a mother returns to work.

Modelling done by NATSEM (the National Centre for Social and Economic Modelling) shows that ''take home rates of pay after childcare costs, tax and forgone welfare benefits are the primary drivers in the female workforce participation rate''.

And Australian women, particularly the mothers of young children, are treated harshly by our tax system. The effective marginal tax, welfare and childcare rates are, reports the Grattan Institute, ''exceptionally high - in [many] cases, above 100 per cent''.

So where is the incentive to return to work?

Having six months' leave after childbirth, even at full salary, does nothing to solve the far more intractable problem of how to find, and fund, full-time childcare for the first five years, and then before-school and/or after-school care for up to a further decade.

The federal Labor government has put a lot of money into childcare, principally in assisting with the costs via the childcare benefit and the childcare tax rebate which pays 50 per cent of costs to a cap of $7500 per child per year and which is no longer indexed. But these measures, while welcome, barely make a dent in costs for some parents and don't apply at all to others.

Some Sydney parents pay more for childcare than they do for private school fees. We are talking around $25,000 a year. Then there are those who have to hire home help because centre-based childcare does not suit their hours of work. These mothers might be shift-workers (cops, emergency workers, nurses) or they might be high-paid senior executives. Either way, the tax system does not help with the cost.

The whole question of tax deductibility for childcare is pretty much a no-go area for both political parties, on equity and cost grounds. The calculations show that a family earning $75,000 would be worse off, receiving considerably less back from tax deductibility than they presently get from the direct government payments and rebate, but a family earning $150,000 would receive substantially more than the maximum of $7500 they are currently entitled to.

Given the critical importance of childcare for enabling mothers to return to work, it is time we had a national conversation about how to reduce the costs for all working mothers, not just those fortunate enough to be able to use centre-based care.

The Grattan Institute recommends that the Family Tax Benefit be treated as income in the hands of the family's first wage earner, and that childcare costs be a deduction in calculating tax and eligibility for welfare benefits. This model, rather than straight out deductibility of costs, would seem to be more equitable and might be effective in removing the current disincentives to mothers returning to work.

Rather than wasting billions on a paid parental leave scheme that leaves mothers stranded after six months, the policy debate should be around how to improve our chaotic childcare system so that it facilitates, rather than blocks, women's return to work. But Tony Abbott does not have a childcare policy. Not yet anyway. He will refer the whole mess to the Productivity Commission and let them sort it out. Mothers who would like to return to work will need to wait several years under a Coalition government until it develops a policy.

Which raises the question: is Abbott's paid parental leave scheme in fact a natalist policy masquerading as economic reform? Perhaps Abbott, a Rhodes Scholar let's remember, did not misspeak when he said: ''We do not want educated women, at the higher degree level, to deny them a career. If we want women of that calibre to have families - and we should - well we've got to give them a fair dinkum chance to do so and that's what this scheme of paid parental leave is all about.''

If Abbott's paid parental leave scheme is ''all about'' raising the fertility rate of highly educated Australian women, this perhaps explains why he is willing to pay them up to $75,000 to have a baby but not address what happens when the six months is up. Perhaps, despite all the talk of ''economic reform'', it's the babies he wants.

Leopard and spots come to mind.

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The Grattan institute report mentioned in this article is actually very interesting reading. Part of me wishes I had read it before deciding to return to work as then the realities wouldn't have been such a shock - Table 4-1 in particular (tables don't paste well) shows what I have discovered that working 4-5 days a week can result in as little as 10% of earnings as take home income.

I've always wondered why they think paid parental leave will encourage mums back to work. If I'm working, and then have my child, I'll take leave and be paid for it if it's offered. But being paid to be away from work won't encourage me back - the fact that I need the money work provides takes me back, and so it just depends on the leave offered how soon I'll be back.

I have a friend who worked up until her first child was born. The company gave her paid maternity leave, which she took, but she never had any intention to return to work. She doesn't need to. The fact that they paid her when she left made no difference.

It's interesting, isn't it. I recently did the sums re adding an extra day to my working week (I'm a parttimer) and it turns out working a whole day extra per week would bag us a net gain of $1700 per annum. That comes out at working for less than $5 an hour. Had we still been using childcare, that would become a negative figure. Basically, the only way it will be worth my while to increase my working hours from this point on is if a) DH takes a massive pay cut or b) I get a massive pay rise or c) I change up to full time hours. Neither of those scenarios seem likely at this point. So we're effectively locked into earning at our current rate.

ETA - I tried to think about how the Grattan Institute suggestion would work and i couldn't think it through. Why would FTB have to be counted as income in order for the CC expenses to be deductible for the purposes of calculating tax/welfare? That's like a chicken and egg thing, isn't it?

MD - I couldn't really work out what they were saying either about what might work - but might be able to find a worked example in some of the references to the original report.

Upon reflection, they might have worded it that way so that the CC deduction happens against the highest earner's income. As it stands, the CC/benefits usually go to the lowest earner. So if your partner was earning, say $65K, and you were about to start work on a part time basis to earn $30K, as a couple you would want the CC fees to be deducted from the $65K person's tax, not the $30K person's tax. Or something.

So are they saying have childcare as a tax deduction? Whilst overall, that might end up better looking at the whole year income, familes would be worse off, as they would be effectively paying all their income straight to childcare then waiting for massive tax return. Unless they are expecting the income earner to submit a yearly withholding variation to the ATO to have their tax rate adjusted. Which it itself is work for both the parent and the ATO.

The cost of childcare was never the deciding factor for me. I just wanted to work a mentally challenging job, part-time.

Very difficult to find.

This is what the report says doesn't really clear it up for me

"These barriers could be substantially reduced by treating Family Tax Benefit as income in the hands of the family’s first wageearner, and treating child care as a deduction in calculating tax and eligibility for welfare benefits. However, more work is required to identify tax and welfare changes that would reduce barriers at an acceptable cost to the budget, after taking into account increased income tax collection as a result of higher participation."

But it does say that a straightforward tax deduction would not work across the board, you would have to be a very high income earner for it to be better than current system.

Cost of childcare is but one of many factors when it comes to returning to work. I am happy with the current system, it works well for our situation and am grateful for it existence. The CCB and CCR we receive, is in effect paid back by the tax I now pay, the reduced FTB we receive and the flow on effect of us spending/putting money back into the economy.
I can see though how the current arrangement would not suit other families

I agree there are a number of issues but I do agree with the report that childcare cost is the most significant. From a personal point of view if the rebate was going up to match the cost of child care or childcare had stayed at 2009 cost levels it would work well enough for us, but really only because I am taking a long term employment view. However it isn't really about it working for me that am concerned about, the figures in the report show how poorly it works for many income bands.

From the report.

"Working women clearly face a wide variety of circumstances that may affect their decision to seek work. However, no single issue appears to affect the choice to work as directly as the marginal costs of tax, welfare and childcare.

The provision of maternity leave pay, particularly if it is at levels relatively similar to previous earnings, can encourage women to return to paid work after having children.

Women might also be more prepared to work if their hours were more flexible. While this issue is frequently raised in the debate about women’s participation, it is not clear how much of a difference it would make. Very large numbers of women are already working in part-time or casual jobs, but whether these are genuinely flexible in a way that meets the needs of women caring for children, or mostly structured for the benefit of the employer, is difficult to tell"

I think they are also suggesting that the cost of childcare should be considered when determining how much FTB etc you get. For eg, we were paying $15k per year in CC fees (after CCB but before CCR), despite me earning a pretty marginal wage. If that $15k had been deducted from our family income when our FTB etc entitlement was calculated, that would offset the loss of benefits that occurs when you start working.

When you think about it, it's not really fair that some families pay massive childcare bills as a necessity to earn a certain income, when other families are earning the same income without incurring those expenses. And the family who is not paying the massive childcare fees (because there's a sahm or sahd) is getting MORE ftb than the family who is shelling out maximum dollars just to be able to get out the door into the workplace. That does not incentivize women returning to work.

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I think they are also suggesting that the cost of childcare should be considered when determining how much FTB etc you get. For eg, we were paying $15k per year in CC fees (after CCB but before CCR), despite me earning a pretty marginal wage. If that $15k had been deducted from our family income when our FTB etc entitlement was calculated, that would offset the loss of benefits that occurs when you start working.

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Ah yes I see what you are saying.

I also think the fact you have to repay benefits you had prior to working - within a tax year is a real disencentive.

They should ring fence FTB A and CCB levels like they do FTB B as that compounds the losing benefits. E.g I had FTB A and CCB while looking for work, now I should still get CCB based on income but don't because is being held to repay amounts already received - so as now paying full fees for childcare my 7500 per child doesn't cover as many days and with the fees as high as they are is a cash flow issue. I also have no clue whether I am going to get a further bill at tax time but fingers crossed the 15% of CCR they hold back might cover it. If I had my time again I think I might have seriously considered only trying to get a job towards end of tax year (and the system should not encourage that) I can fix it by borrowing from my brother but plenty of people wouldnt have that option.

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Ah yes I see what you are saying.

I also think the fact you have to repay benefits you had prior to working - within a tax year is a real disencentive.

They should ring fence FTB A and CCB levels like they do FTB B as that compounds the losing benefits.

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Yes, when I first returned to work after DD2, it was a temp role. I had a massive spreadsheet set out to see if it was worth it, comparing income FTB, childcare fees etc. Basically I had to save most of what I earnt, as I needed it to top up the reduce the FTB for the rest of the year. I work in the area of finance, so I was able to work out the figures, but it would be a struggle for many other parents. How many do some work, advise of the increase annual income and then have to handle a drop in FTB, who have not prepped for it? Probably too many.

There is so much interplay, one thing goes does, but another goes up, then something else goes down. I suppose it could be argued that a family should not rely on these benefits, but the reality is that families do.

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Kate Ellis reveals 150,000 families face childcare pain in Budget
by: SAMANTHA MAIDEN NATIONAL POLITICAL EDITOR
From: The Sunday Telegraph May 19, 2013 12:00AM


Minister for Early Childhood and Child Care Kate Ellis with Katelyn at Jacky's Family Daycare, Kilburn.

CHILDCARE Minister Kate Ellis has revealed up to 150,000 families will be stung by the Budget's decision to freeze a $7500 cap on childcare relief for half a decade.
For the first time, the Gillard government has admitted the number of families who face being cut off from the childcare rebate will double from 75,000 over four years.

Despite rejecting means testing for childcare relief, the changes will operate as a defacto means test because high income families with two incomes living in Sydney and Melbourne who can pay up to $500 per week or $26,000 per annum in childcare costs are most likely to be hit by the childcare rebate cap currently.

The decision to freeze the amount parents can claim for six years will leave thousands of parents facing higher childcare costs.

While the government has argued the cap currently hits few families, new departmental figures confirm 150,000 families will be stung by the claims cap by 2017.

After parents spend more than $15,000-a-year per child on childcare they secure no fee relief under the 50 per cent rebate.

By 2017, the cap would hit 15 per cent of families with children in childcare who would be left to pay the full cost of childcare without relief.

Treasurer Wayne Swan announced the plan in Tuesday's Budget and families are likely to face the childcare freeze even if Tony Abbott is elected. He has said he will accept most of Labor's $43 billion in savings and tax increases.

"The rebate will continue to be not means tested," Ms Ellis said. "When they were last in government, the Coalition offered families only a 30 per cent rebate with a cap of just $4354.

"The overwhelming majority of Australian families - nearly 90 per cent - receiving the child care rebate will not reach the cap in 2014-15."

Most families do not have their children in childcare five days a week and as a result the average rebate amount claimed by families even by 2017 will be just $3,648 per family.

"What families should be most worried about is Tony Abbott's publicly stated plans to have child care fee assistance designed by the Productivity Commission which has previously recommended that the rebate be means tested."



Read more: Kate Ellis reveals 150,000 families face childcare pain in Budget | News.com.au

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Thanks for posting that Astrid.

All these figures assume that everyone is doing what they want to in regards to childcare and working - the problem is it is all so short term the impact is being looked at in terms of what families are currently doing, which isn't necessarily what they want to do - or in terms of really what the government should want them to be doing in the long-term.

And this

"What families should be most worried about is Tony Abbott's publicly stated plans to have child care fee assistance designed by the Productivity Commission which has previously recommended that the rebate be means tested."

Really annoys me - (I am not a Tony Abbott fan and highly unlikely to vote liberal) but trying to suggest that we should all just suck it up and stick with what we have because any changes implemented might be worse is just scare mongering - any changes will be worse for some and better for others no doubt - but I would like to see them consistent with some sort of long term plan. (If other plans are worse for me so be it but I do like to see a bit of logic behind these things)

I am actually surprised that the numbers they are suggesting are so low (although I suppose if you look at the figures from the Grattan report about numbers of women working maybe is less surprising) - round here even with 40% CCB you would hit the cap at just three days a week in childcare.

Wysiwyg - I agree this is an area where the often quoted numbers don't necessarily capture the experience of many families. A huge proportion of families rely in unpaid care by family members like grandparents when they return to work. Which is lovely for those who can. For those who can't, for those who have to add the time of their long commutes to their childcare bills, for those who rely on additional hours of childcare (above their working hours) to juggle other challenging life circumstances, for those who work rotating rosters that mean they have to book (and pay) for days when they are not working - all of those people will have disproportionately high child care costs that are not reflected in the averages.

On an average rise of $5 per day across the 8 years CCR will have been frozen between 2009-2017 it will equate to costing over $10,000 extra per year to send a child full time. And that is per child. Of course there is a limit on what the budget can do, but some pressure needs to be taken off families utilising care somehow, surely. :/
For me, my situation has allowed this to not be an indicator for whether or not I returned to work, but with circumstance changing it may well be in the future and to be honest the prospect certainly unhinges my desire for more children. I don't expect a handout but if fees rise at the same level they are now by 2017 fees will be $525 per week or $27,500 per year in this area. It begins to cost more than private school education where there are no rebates!

Edit: Sorry, a tangent.
HAH! not that it isn't already with fees being at roughly $22,000 at present...
OMG for two kids in care that's $44,000 (current) or $55,000 (2017) for childcare per year, before rebates.
That would cancel out my wage or more than it. If your partner was on a high income and you were then ineligible for any CCB or FTB what incentive is there to work. Sure you get your $15,000 rebate but that means you would be working for $280 per week (before tax) ... to work your damn ar$e off away from home, your kids and family 38 hours per week + travel ... for me = $6.50 per hour wage. No thanks.
Not to mention the FTB you wouldn't get. You would be better at home with your partner working only on their high income than both working for your average one - this is exactly why women (or the lower income earner) don't return to work.

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Yes, when I first returned to work after DD2, it was a temp role. I had a massive spreadsheet set out to see if it was worth it, comparing income FTB, childcare fees etc. Basically I had to save most of what I earnt, as I needed it to top up the reduce the FTB for the rest of the year. I work in the area of finance, so I was able to work out the figures, but it would be a struggle for many other parents. How many do some work, advise of the increase annual income and then have to handle a drop in FTB, who have not prepped for it? Probably too many.

There is so much interplay, one thing goes does, but another goes up, then something else goes down. I suppose it could be argued that a family should not rely on these benefits, but the reality is that families do.

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I agree - I could have probably worked it out but really the going back to work was more about needing to go back at some point and if I left it much longer I would need to change career, if I didn't have them in childcare at all I had worked out we could just about afford it (with some family monetary backup if required) - but I couldn't see how that would work long term once the kids were in school. Maybe I should have worked it out anyway because then it would have been less of a shock to me - but who knows really. I certainly might have set myself different deadlines about when I needed to find a job by, because if it had taken longer it wouldn't have been as expensive as thought due to way benefits work for tax year.

Anyway is by the by now - hopefully this contract will get me something more permanent which was the point of it really and I won't be faced with trying to balance between a period of not working then working again next tax year.

I am so surprised about how little people are concerned by cost of childcare - the figures cookiedoctor put up are the same as what the rates are round here too, but as have asked a few people what they think the annual cost of 5 days a week childcare is and they have all said around the $15000 for two kids (without any deductions) which is quite different from the reality - maybe that is why people are so ambivalent about it. It is a vicious circle though, because the more women who are working the more employers will provide flexibility and it become common in the workplace, the easier it will be to find the right type of job - so I think the cost of childcare also impacts on the availability of the types of jobs people want also.