Modern Australian

Vital Signs. Untaxing childcare is a bold idea that seems unfair, but might benefit us all

  • Written by Richard Holden, Professor of Economics, UNSW

Australia’s system of childcare support is pretty good.

It ensures high-quality care is provided to a large number of children, it is targeted through income-based subsidies, and it is attentive to the needs of disadvantaged children and families.

But it has significant weaknesses.

It is extremely complex, with four different rates of subsidy based on the type of care involved, six different income thresholds plus a sliding scale for how household income affects the subsidy, an annual cap of $10,373 per child for households earning more than $188,163, and an activity test to determine eligibility.

Worse, many families find it hard to get good childcare. Children are added to waiting lists from birth.

Read more: New childcare policy still leaves vulnerable families behind

And, as the Productivity Commission and others have pointed out, the sliding income scale and caps can mean that a parents looking to expand their working hours from 3 days to 4 days a week can face effective marginal tax rates approaching 100%.

This is not a good way to give parents choice about whether to work inside or outside of the home. By restricting (mainly female) choice it restricts the potential size of the workforce.

And that, in turn, contributes to the gender pay gap. On average, women earn only 86% of what men do.

Time out of the workforce is one of the key reasons.

How to do it

Vital Signs. Untaxing childcare is a bold idea that seems unfair, but might benefit us all UNSW New Economic Policy Initiative This week the New Economic Policy Initiative at the University of NSW launched a report coauthored by Rosalind Dixon, Melissa Vogt and myself entitled (Un)Taxing Childcare . Our proposal would allow households who want to to continue to use the current arrangements without modification. Household twho wanted to forego the current arrangements could instead receive a tax deduction for childcare expenses of up to A$60,000 per year. The money could be spent on centre-based childcare, home-based care, or a nanny. In two-parent households that took advantage of it, each parent would be able to deduct 50% of the cost at their marginal rate up to the limit. High earners would gain a lot… Modelling of the plan by Ben Phillips of the Australian National University finds our policy would leave more than 205,000 households better off – one in five households with children. The ability to pick systems means none would be worse off. The average couple with children would be $618 per year better off. Highest-earning households would benefit the most, with an average benefit for the top fifth of $1,080 per year. But the benefit for the second bottom fifth would also be high, at $626 per year, adding 1.9% to their disposable incomes. Objections will include the skew of benefits toward higher earners, an initial hit to budget of $608 million per year, and the possibility that the deduction will allow private providers to push up prices. …but the economy would gain the most Against them needs to be set the boost in the size of the potential workforce big enough to make the budget cost pay for itself, and an increase in the options available to parents considering returning to work. We estimate that if half of all eligible households took up the tax deduction option the economic benefit from additional work would amount to $3.9 billion per year, which is about the output of the entire Australian dairy industry. Read more: Election FactCheck Q&A: does the government spend more on negative gearing and capital gains tax discounts than on child care or higher education? The hybrid nature of our proposal means that low earners who stayed on the existing scheme would be no worse off. But the economy would be more vibrant, skills that have been built up would be retained and enhanced, and the gender pay gap could narrow.

Authors: Richard Holden, Professor of Economics, UNSW

Read more http://theconversation.com/vital-signs-untaxing-childcare-is-a-bold-idea-that-seems-unfair-but-might-benefit-us-all-127430

NEWS

living with fire and facing our fears

The smouldering ruins of a child's bike lies amongst a property lost to bushfires in the Mid North Coast region of NSW last month.Darren Pateman/AAPIt is only mid-November but we...

why homicide rates in Australia are declining

Latest figures reveal homocides in Australia are at historic lows. AAP/James RossAccording to the latest figures, homicides in Australia are at historic lows and compare well against international trends.So what...

how designing hospitals for Indigenous people might benefit everyone

Sunshine Coast University Hospital uses evidence-based design to provide outside spaces with views that Indigenous people tell us they value.Architectus, Author providedWelcome to the next article in our Designing Hospitals...

Australia's slipping student scores will lead to greater income inequality

While no test is perfect but the Programme for International Student Assessment rankings are pretty useful for understanding the skills young people are being equipped with.www.shutterstock.comThe latest Programme for International...

We're using lasers and toaster-sized satellites to beam information faster through space

The electromagnetic spectrum we can access with current technologies is completely occupied. This means experts have to think of creative ways to meet our rocketing demands for data.NASA Johnson/Flickr, CC...

Angus Taylor's troubles go international, in brawl with Naomi Wolf

Morrison would rather live with a problem minister in a key post than give a scalp to Labor.Mick Tsikas/AAPScott Morrison said it with a straight face, and repetition for emphasis...

Early medical abortion is legal across Australia but rural women often don't have access to it

Australian women can have an early medical termination – which involves taking two oral medications – up to the ninth week of pregnancy.Jonatán Becerra/UnsplashAround one in six Australian women have had...

All hail apostrophes - the heavy lifters who 'point a sentence in the right direction'

Doing away with the apostrophe is not just the beginning of the end ... it's the end. www.shutterstock.comReports this week about the demise of the Apostrophe Protection Society may have...

It's the 10-year anniversary of our climate policy abyss. But don't blame the Greens

In 2009, a Bob Brown-led Greens party voted against an emissions trading scheme – but they can't be blamed for what came after.Mick Tsikas/AAPFederal Labor this week commemorated a dubious...

Morrison cuts a swathe through the public service, with five departmental heads gone

Scott Morrison has announced a dramatic overhaul of the federal public service, cutting the number of departments and creating several new mega ones, while removing five secretaries.The departments will...

Tick, tock... how stress speeds up your chromosomes' ageing clock

At a molecular level, stresses and strains can make your body clock break into a sprint.Lightspring/ShutterstockAgeing is an inevitability for all living organisms, and although we still don’t know exactly...

The government wants to privatise visa processing. Who will be held accountable when something goes wrong?

The Department of Home Affairs has begun taking steps to outsource its visa processing to private service providers. This move has sparked an important national debate on transparency, accountability and...

Popular articles from Modern Australian

6 Essential Features You Should Consider Before Buying a Ski WatchNew or Used Car: How to Select The Best For Your FamilyChoosing a home builder in SydneyWhy regular visits to the eye doctor are important6 Budget Tips for a Student Studying Abroad in Australia5 Ways to Style Your Winter Wardrobe Essentials Into Versatile Outfits5 Brisbane Summer Classes Your Teens Can AttendSummer Gardening Tips4 Tips to Prepare for a Home Meditation RetreatWhy You Should Hit the Gym This SpringSaving History One VHS Tape At A Time4 Vaccines Your Teens Should Be GettingStrength Training Tips To Make Your Workout EffectiveTop Fashion Secrets To Look Stylish No Matter The Occasion  How to save money on major home repairs