The cost of coming back: achieving a better deal for working mothers

Alison Kitchen, National Chairman, KPMG
Grant Wardell-Johnson, Lead Tax Partner, KPMG Economics and Tax Centre

More than 125,000 returning-to-work Australian mums are actually financially worse off by increasing their working days above three days a week, a new KPMG report, The cost of coming back: achieving a better deal for working mothers, has found. Others – particularly at the lower end of the income scale – gain hardly at all by working more days.

For a couple where both parents earn the minimum wage with two children in daycare, if the woman increases her days from 3 to 4, on day 4 she is effectively working for $2.50 an hour. This is truly shocking and due to the interaction between Australian taxation, family payments, and childcare subsidy systems creating punishing disincentives for working mothers at all income levels. It also exacerbates he effects of wider social biases against women.

Over 70 percent of part-time workers are female. Too often it is women, not men, who are called on to work part-time – or not at all – while men remain in full-time roles. It is for everyone, including employers, to challenge these norms. The long-term answer is for Australia to move towards a different model of work, where fathers working full-time can reduce their working days from five to four per week, while mothers have the choice of increasing theirs from three to four days. This would give women better opportunities to achieve their career ambitions.

But families at both ends of the economic scale are impacted. Consider a professional couple where the father earns $100,000 per annum and the mother earns the part-time equivalent of the same salary. By increasing her weekly working days from four to five, the family budget is reduced in net terms by more than $4,000 per annum, with the mother losing $85 every extra day she works.

By reducing the obstacles for professional, university educated women to work more days up to 12 million working hours could be added to the economy annually. This is the full-time equivalent of an additional 6,500 highly talented women in the Australian workforce.

Of course we recognise that fixing the problems for professional women would not affect the numerous disincentives for working women with young children further down the income scale.

Without a major shift in the public policy philosophy underlying taxpayer-funded childcare support, these female workforce disincentives will persist.

Our report outlines a relevant new measure – the Workforce Disincentive Rate (WDR). We define this as the proportion of any extra earnings that is lost to a family after taking account of additional income tax paid, loss of family payments, loss of childcare payments, and increased out-of-pocket childcare costs.

A 100 percent WDR means the family is no better off from the mother working more hours, while a WDR above 100 percent shows the family is actually worse off when the mother works additional hours.

Sadly, the study finds WDRs of between 75 percent and 120 percent are commonplace for mothers seeking to increase their days of work beyond three per week. It can cost some professionally qualified working mums almost $30 a day in tax, lost payments and out-of-pocket childcare expenses if they increase their working days from three to four per week. Other working mothers can lose almost $80 a day if they move from four to five days of work per week.

We need to see modifications to the CCS that reduce women’s WDRs to well below 100 percent. For some women to face WDRs of 120 percent is unacceptable.

This will involve moving towards a universal CCS and much slower phase-out rates for family payments. But not all government payments are means-tested. Medicare, for example, is a universal system, and in time, there is no reason why the CCS should not be treated the same.

The interplay of the tax and transfer systems exacerbates the effects of wider social biases against women. At a societal level it is time to start rethinking equity with an increased focus on gender.

Without a major shift in the public policy philosophy underlying taxpayer-funded childcare support, these female workforce disincentives will persist. It is for everyone, including employers, to challenge these norms.

Read the full report, The cost of coming back: achieving a better deal for working mothers

Add Comment