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$5 billion into childcare will boost GDP by $11 billion a year: The Government’s missed opportunity

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Despite the majority of pandemic-induced job losses occurring in female-dominated industries, the Government has not delivered policies that support women and men equally throughout Australia’s economic recovery.

The 2020-21 Budget announced a $240 million Women’s Economic Security Statement, however missed an opportunity to boost workforce participation and long-term productivity through childcare investment.

A focus on male-dominated industries

The centrepiece of the Budget was a $1.5 billion investment into manufacturing.

Danielle Wood, CEO and budget policy program director at the Grattan Institute, noted that the Budget had a disproportionate focus on male-dominated industries.  

“The sectors the Government has chosen to support – construction, housing, transport, infrastructure, manufacturing and defence, utilities and energy – are fairly male-dominated sectors and they’re not the ones that have taken the biggest hit from the economic downturn.”

Research from the Australia Institute also shows that the Government’s tax reforms, a central theme in the Budget, disproportionately advantages men over women.

They found that in 2020-21, 60 per cent of the Government’s tax plan will go to men and 40 per cent will go to women. This disparity is deepened in 2021-22, where 69 per cent of the tax benefits will go to men and only 31 per cent will be received by women.

“Because high income earners are disproportionately male in Australia, if you give rich Australians a tax cut, the majority of the benefit will flow directly to men over women,” wrote Matt Grudnoff, senior economist at The Australia Institute, in a media statement.

“Women have been hit the hardest by the COVID recession, in terms of economic impact and job losses, but the Government has designed its tax changes in a way that will benefit men by a factor of more than two to one from next year onwards.”

These effects augment existing issues with Australia’s tax policy that already disincentivises women to work full-time.

Australia’s tax and transfer system is heavily reliant on means testing which means that benefits are less available as income increases. Households receiving benefits such as the Family Tax Benefit may be disincentivised to earn extra income, which often means reduced hours for women.

For instance, the effective marginal tax rate (EMTR) – the amount in a dollar earnt that is then lost to tax, transfer payments and childcare costs – exceeds 100 per cent for some mothers who work a fourth or fifth day. This means that the tax system effectively prevents many women from working full-time because they would have a superior EMTR when working fewer days.

However one of the most significant contributors to the declining rates of full-time female participation is the cost of childcare.

Childcare and women’s workforce participation

Before the pandemic, women’s workforce participation had been increasing for four decades.

Source: OECD; Grattan Institute

However the proportion of Australian women in part-time work is much higher than the OECD average, sitting at 37 per cent in 2018 in comparison to the 25 per cent OECD average.

Source: OECD; Grattan Institute

The Grattan Institute found that a number of factors contributed to this trend. First, the high cost of childcare is the most common reason nominated by mothers not working full-time. Full-time centre-based childcare is estimated to be 16 per cent of a typical Australian couple’s income. This compares to the OECD average of 10 per cent.

Secondly, the lack of available and quality childcare may prevent women from increasing their hours. For instance even if women decide to work more, they may be deterred from increasing their hours if they are unable to find suitable childcare.

Thirdly, Australian women do more unpaid labour than men and so taking on extra hours without flexible working arrangements for both partners in a heterosexual relationship will disproportionately hurt women.

Thus childcare policy reform would see a huge boost to women’s workforce participation and economic productivity overall.

The Grattan Institute estimates that a $5 billion a year investment in childcare will boost GDP by $11 billion a year, lead to a 13 per cent increase in hours worked by second-earned with young children and boost a woman’s lifetime earnings by about $150,000.

This would be equivalent to the economic benefit of cutting the company tax rate to 25 per cent.

What should the Government be doing?

Ms Wood suggests two solutions for long-term economic recovery.

“In the short-term, it’s about propping up those industries that have taken a hard hit and have a potential to turn around. Direct support, like voucher schemes where consumers are given money to spend at local restaurants or tourism businesses, is a way to directly put money into those sectors.”

“The Government can also invest in childcare. Childcare is the most important lever governments have.”

The OECD report Doing Better for Families Australia, found that Australia spent less on childcare than other OECD countries. Australia spent 0.4 per cent of GDP in comparison to the OECD average of 0.6 per cent.

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Ann Wen
Ann is a journalist at Dynamic Business.