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Photo: About 125,000 partnered women with children could be worse off, KPMG says. (Supplied: Flickr)Would you increase your working days from three to four to earn just $2.50 an hour?
This is a scenario that could affect some partnered women with two children, if the woman is the second-income earner in the family working part-time, and she and her husband are both on the minimum wage.
It is all because of “punishing disincentives” confronting working mothers, detailed in a KPMG report called Brick walls and glass ceilings: achieving a better deal for working mothers.
The report found about 125,000 partnered women with children across various income spectrums could be worse off when increasing their days at work to more than three a week.
Women are the ones worst hit by effective marginal tax rates — that is, the proportion of every extra dollar earned that is lost to the family after taking account of additional income tax paid, loss of family payments, loss of childcare subsidies and increased out-of-pocket childcare costs. The report calls it the “working disincentive rate”.
If a couple with two young children in long day care both earned the minimum wage rate of about $37,500, the family is only about $900 a year better off. This is because the family loses 88 per cent of their extra $7,500 in income when the mother increases her working days from three to four per week.
On the extra day, the mother is effectively working for just $2.50 an hour.
Time for dads to step up
It is not just those at the lower-income end of the spectrum that get hit. Further up the pay scale, if the father earns $80,000 a year and the mother half that, she would be working for less than $1 an hour on her fourth working day.
This is a scenario Angela Campanelli-Walker, 26, knows all too well.
She is a childcare worker, and before she took time off to have her second child, she was earning the minimum wage. Her husband Kale Walker, 32, earns less than $80,000 a year pre-tax, working as a butcher at Costco in Docklands, Melbourne. The couple have two children —Eva and Jason, aged two and three-and-a-half months.
She told ABC News she had no option to return to work as the pair could not afford the high cost of child care. She is looking for a new job with higher pay, which may end up biting, she said.
“At the moment, I am getting the Child Care Subsidy,” she said. “I’m not sure how dramatically it will impact me but it [high effective marginal tax rates] will a lot.”
“I wouldn’t know if I’d want to work five days a week. If I work more hours I have to put my kids in care for more time. That costs more. And my tax goes up.”
She suggests the Federal Government consider increasing the threshold for the Child Care Subsidy so women like her won’t be hit, and can consider working full-time.
KPMG’s lead tax partner, Grant Wardell-Johnson, said the cases cited in the report are theoretical examples.
In reality, people work varied hours in a year and the hourly costs of child care can dramatically vary, he said, but he added that examples in the report were still an indication of the major disincentives for working women.
In a scenario of the father earning $100,000 working full-time — while the mother is on the same wage rate but working part-time — by increasing her weekly working days from four to five, the family budget is reduced in net terms by more than $4,000 a year, with the mother losing $85 every extra day she works, the report said.
The solution, Mr Wardell-Johnson said, was both in the hands of government and individuals. The Federal Government needs to make further changes to childcare subsidies to stop families from hitting a “cliff”, he argued, while more men could take up part-time work and spend more time looking after children.
“It’s not just a women thing,” he said.
“It’s about relationships. It’s about people sharing parental responsibilities far more fairly than we do now.”
He said large corporates — such as professional services firms, the big banks and big miners — should all be encouraging part-time work for their male employees.
How families hit a ‘cliff’ on childcare
Mr Wardell-Johnson said childcare costs vary around the country, making it hard to model the exact benefit of government subsidies. The report assumes a cost of $12 an hour for all-day (10 hours) child care.
At an annual family income of $186,958, an extra dollar of family income would bring the Child Care Subsidy per-child cap into play. This family, with a child in all-day care, would receive a subsidy equal to the lesser of 50 per cent of its childcare costs, or $10,190 per annum, the report concluded.
If this family had a child in all-day care for four or five days a week, an extra dollar of income would cause the subsidy to fall by as much as $5,111 per annum, it found.
A second cliff occurs at a combined annual family income of $351,248 per annum.
If a family with an income of $351,248 earned just $1 more per annum, it would go from receiving the subsidy of 20 per cent of the cost of its childcare fees to receiving no subsidy at all. This could cost the family almost $6,000 for earning $1 extra, it said.
Getting mums back to work boosts GDP
KPMG wants to see further changes to childcare subsidies to counteract the cliff. It suggests eliminating the per-child cap that comes into play at $186,958 a year. It also suggests replacing the subsidy’s termination at $351,248, with a phase-down rate of 1 percentage point for every $3,000 of extra annual income earned.
| Family income | Current childcare subsidy | KPMG proposed subsidy | Estimated benefit, 1 child 4 days |
|---|---|---|---|
| $171,958 to $186,958 | 50pc | 50pc | – |
| $186,959 to $251,247 | 50pc capped at $10,190 | 50pc, no cap | Maximum of $2,051 annually |
| $251,248 to $341,247 | Cut 1pc for every $3,000 up to $10,190 | Cut 1pc for every $3,000 extra income | Benefit reduces to 0 at $275,248 |
| $341,248 to $351,247 | 20pc | 20pc | No benefit |
| $351,248 or over | Nil | Cut 1pc for every $3,000 extra income | Benefit reduces from max of $5,814 annually to 0 at $408,248 |
It estimates that 125,000 households could benefit if the Government takes up its suggestion to eliminate the two cliffs, which it estimates would cost no more than $250 million in additional annual childcare-subsidy spending.
But the gain to GDP would be higher, the report suggests.
By reducing workforce disincentives facing professional, university-educated women, KPMG estimates up to 12 million working hours could be added to the economy annually. This is the full-time equivalent of an additional 6,500 women in the Australian workforce.
“These proposals could boost Australia’s GDP by an estimated $500 to $775 million annually,” KPMG concluded.
Mr Wardell-Johnson says a view among some economists is that higher childcare subsidies will just result in higher childcare fees. But he said Australia needed a “happy balance” between fair subsidies and fees.
Topics: child-care, workplace, tax, work, business-economics-and-finance, australia
