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Child care subsidy changes would incentivise working parents

By Cameron Micallef · October 31 2019
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Child care subsidy changes would incentivise working parents

By Cameron Micallef
October 31 2019
Reading:
egg
egg
Child care

Child care subsidy changes would incentivise working parents

author image
By Cameron Micallef · October 31 2019
Reading:
egg
egg
Child care

Almost 30,000 additional workdays per week and close to $700 million in the GDP could be created each year by revamping Australia’s Child Care Subsidy model, a big four accounting firm has said.

Consulting giant KPMG has reported that changes to the Child Care Subsidy (CCS) would better enable parents to return to work, but also see a doubling of the expense to the government that would be required to boost the subsidy.

KPMG’s report addresses the problem caused by an interaction of Australia’s tax and transfer system, which currently discourages secondary earners in families from working more hours.

“Our economic modelling in this report shows the proposals would generate an additional $678 million – using conservative assumptions – at a cost of $368 million in extra CCS spending,” Grant Wardell-Johnson, KPMG’s partner, economics and tax centre, said. 

The firm has used the example of a healthcare worker earning $50,000 a year through working four days a week.

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As the system currently stands, this employee would currently only keep $1,500 of the $12,500 earned from that fourth day of work over the course of the year: a loss of 88 per cent.

Under KPMG’s proposal, this worker would keep almost 50 percent of the money earned from that fourth day’s work. The Workforce Disincentive Rate (WDR) cap (marginal income tax rate plus 20 percent) would be 54.5 percent instead of the current 88 percent and the health worker would receive a top-up payment of $4,188.

KPMG Australia chairman Alison Kitchen said, “The main proposal is to cap the WDR at the secondary earner’s – usually a woman – marginal income tax rate, plus 20 percentage points. There would then be a top-up payment through the CCS system.”

President of Chief Executive Women Sue Morphet believes updating the CCS will better enable women to return to the workforce.

“Increased affordability of child care can be a key enabler of greater parental equality in our society,” she said.

“Enduring norms regarding gender and work have proven harmful to the economic welfare of women, and our society as a whole,” Ms Morphet continued. 

She considered reducing financial disincentives for parents seeking to work full-time as “paramount”. 

“If we aspire to have equal workforce participation and leadership progression, we must ensure men and women are equally empowered, socially and financially, to share the income-generating and care-giving roles.”

Child care subsidy changes would incentivise working parents
Child care
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About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

Join The Nest Egg community

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