The Productivity Commission’s childcare report recommendations will not win back middle-income families to the Coalition government.
It won’t restore equity between families with two full-time incomes and two-parent families trying to raise children on one breadwinner’s income, nor will it substantially increase the participation of women in the paid workforce.
The report indicates that the government’s proposed new childcare package would be no less complicated than the present tangled system of benefits and rebates.
The Productivity Commission has proposed a “means-tested payment per child paid directly to the childcare service for up to 100 hours of care per fortnight”.
It would be based on the median price charged by childcare service providers (as the cost varies across cities and regions), differentiating by the age of the child for long day care
It would embrace even more childcare services, including nannies.
It would cover 85 per cent of the cost of childcare for families on incomes up to $60,000, reducing to 20 per cent for families with a family income of $250,000 or more.
Parents would have to prove they were in the paid workforce, training or studying to be eligible for the payment (the “activity test”).
Families will be exempt from the “activity test” if:
• parents are receiving an income support payment;
• the primary carer is a grandparent or other non-parent primary carer;
• there are exceptional circumstances, such as a sudden change in employment circumstances that would mean they no longer satisfy the activity test; or
• the child has been assessed as “at risk” of abuse or neglect.
A top-up payment would be made to cover 100 per cent of childcare costs for 100 hours of care a fortnight for children at risk of abuse or neglect
Alternatively, the commission suggested one means-tested payment with a base of assistance of 50 per cent of costs available to all families.
The object of the commission’s inquiry was to increase women’s participation in the paid workforce. However the commission itself estimates that the plan would deliver only a modest 1.2 per cent increase, or 16,400 more mothers, in paid employment on a permanent basis.
Furthermore, a most important but overlooked fact is that it has been shown that most mothers with young children do not want to return to full-time paid work. No amount of subsidies for institutionalised childcare appears to make much difference to their participation in paid employment.
If the focus of the Coalition government’s much-touted families package is to be on subsidies for commercial childcare, then it does not deserve to be called a families package at all.
Government funding for commercial childcare for families on two full-time incomes, when compared to the far less generous family tax benefits for single-income, two-parent families caring for their own children, penalises single-income families, where one of the spouses chooses to be a full-time homemaker.
This is inequitable. And the volume of childcare subsidies for two-income families is expected to increase beyond the $5.7 billion paid in childcare subsidies for the last financial year.
The value to the community and to the economy of raising children, future citizens and taxpayers, remains the same whether a couple chooses to raise its children at home or outsource its childcare to paid strangers.
Families deserve to be treated equally and receive the same amount of assistance for each child.
An authentic families package should be designed to enable families to provide for their dependents and to make them as independent of the welfare state as possible.
Two changes to the current taxation and family benefits system would improve efficiency and achieve equity between families.
First, the current complicated system of family allowances, childcare subsidies, maternity allowances and other concessions for children in the current tax-transfer system should be replaced by a uniform, non-means-tested annual taxation concession, such as a tax credit or cash allowance, with every family receiving the same monetary value per child.
Second, an optional family-based taxation system should be introduced. This would permit a single-income, two-parent family to split its sole income for tax purposes. It would give it much-needed tax relief to help meet the costs of home-based parental care.
Family-based taxation is currently allowed in 15 OECD countries. The rationale in each country is the same: the household, not the individual, is the basic economic unit of society, so the family should be treated as a single unit for taxation purposes.
Simplifying the tax transfer system along these lines would also lead to significant savings in administrative costs. (See Stephen Smith, “Restore the family wage by simplifying the tax system”, News Weekly, April 13, 2013).
The government has a lot riding on producing a genuine families package that will win back the families of middle Australia.
Terri M. Kelleher is Victorian state president of the Australian Family Association.