Productivity Commission report on childcare disappoints

The reality is that professional women or those on medium to high earnings already have strong incentives to return to work, even in the absence of child care fee subsidies. There is a case for providing work incentives for those on lower incomes (especially those at risk of remaining on welfare), though there is an unmentioned risk at the lower end. For those on low incomes, the hourly cost of formal child care (about $8 an hour to provide) means that the gross cost of having two children in formal care would fully offset the gross returns from working for many women on low incomes. [A proposal to publicly subsidise travel to and from work to the extent that it exceeded daily earnings would be laughed at, yet current child care fee subsidies can induce workforce participation in cases where the actual cost of care exceeds the market value of the parent's labour.]

One alternative to costly formal child care is informal care (e.g. by relatives), which may also be more readily available for those of lower socioeconomic status. If, however, such parents receive child care fee subsidies of up to 90 per cent, the monetary incentive to use less costly alternatives largely disappears.

One finding of the report (Draft Finding 6.4) has received less attention that it deserves (including in the Commission's recommendations). "Secondary income earners in couple families and single parent families with children under school age could potentially face a significant disincentive to work between 3 to 5 days a week due to high effective marginal tax rates from the cumulative impact of income tax and the withdrawal of childcare assistance, Family Tax Benefits and the Parenting Payment." It also noted that " around 38 per cent of Australian couple families have one parent working full time and one parent part time, compared with an OECD average of 24 per cent."

In my view a key barrier to full time female labour force participation lies in our income tax system, which offers a particularly generous tax-free threshold (no tax to $18,200) followed by some savage marginal tax rates. The marginal rate becomes 34.5 cents in the dollar (32.5 cents plus 2 cents Medicare levy) when incomes reach a modest $37,001. Other countries tax systems generally provide much less incentive to work part time. No wonder so many mothers choose to work part-time in this country.

An alternative method of restoring incentives (for all taxpayers not just working mothers) would be to move in the opposite direction to that recommended by the Productivity Commission and cut back on unnecessary public spending, especially on the middle class. This would require greater individual responsibility but would allow for lower levels of taxation and permit taxpayers to spend more of their own earnings themselves.

It should be the responsibility of all but the most disadvantaged of parents to themselves bear responsibility for the care of their own children. Current policy, seemingly endorsed by the Productivity Commission, involves the Government bearing much of this cost burden.

If there is widespread acceptance that paying for the care of young children, while their parents go to work, is a government responsibility then where do we stop? The next stage is pet owners demanding that it is a Government responsibility to take their pet dogs for a walk, and look after them when the owner goes on holidays!