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Why the Government is wrong to reduce the childcare rebate – and why it will mean fewer women in senior roles

I’m deeply concerned about by the government’s announcement that the childcare rebate is to be reduced (yes – you read right: reduced!).  As you’ll be aware, I recently co-founded the Make Care Fair lobby aimed at increasing childcare support and flexibility for Australian families… and yet the government has just announced plans to cut the childcare rebate back to $7,500 per child per year, from the current $8,179 per child.  This is going to have an impact on tens of thousands of Australian families with children in paid care and their employers.  One in four parents of kids in childcare already go back to work for no net financial gain; reducing the childcare rebate will make this worse, reduce the number of women in the leadership pipeline as even more women drop out of the paid workforce, and of course fewer women in senior roles.

I became interested in this issue of childcare and it’s impacts on the career advancement of women through my work in mentoring and supporting women on their career journeys. In discussions with many of my mentees it became clear that childcare – or more importantly, the rigidity of childcare options endorsed by current government rebates and schemes – presents an enduring and cumulative obstacle to their career progression.  

And while I don’t think childcare is the sole responsibility of women, the fact is that in Australia and most of the developed world, women (and their careers) bear the brunt of childcare costs.  Women with kids mostly fail to make cut of the (small) number of senior appointments women receive, as this fabulous clip by David Leonhardt on ‘Momism’ so eloquently points out (and is absolutely as relevant in the Australian context):



This gave me the impetus for creating Make Care Fair, a grass roots movement aimed at raising awareness with policy makers of the need for childcare reforms – including consideration of tax deductibility of childcare – as a key consideration in increasing female participation in the workforce.

Some other important considerations re childcare and careers and the impact on a woman’s career:

  • 24% of working mothers say working isn’t viable however they remain in the workforce due to independence and the necessity for career progression 
  • Leaving the workforce for cost of care reasons has a compound negative effect. After leaving the workforce 52% of unemployed carers feel that their skills have been reduced whilst off work, and 49% have reduced confidence in their ability to return to work.
  • The relationship between the cost of care and employment choices affects employees on all incomes, i.e. from those on relatively high incomes (AUD$90K and upwards) to those on relatively low family incomes (AUD$50K and below).
  • Hence strategies to address all incomes groups will have a significant impact upon choice and workforce participation for all employees. 

There is also an impact on workplace participation and the Australian economy

  • 51% say one parent would have to quit their job if the costs of childcare increase
  • For every AUD$1 the Government spent on childcare, the Government get back AUD$1.86 in revenue from improved workforce participation rate
  • 50% of parents would increase their hours of work if care was more affordable
  • 46% of parents say the cost of childcare for their children under school age is too high relative to their income. 36% are considering leaving the workforce
  • 26% have already reduced their hours of work because of the high cost of care for children under school age.
  • Strategies to reduce the cost of care will have a direct impact on employment outcomes as there is a strong casual relationship between the financial cost of care and employment choices, and affordability is a key issue for all employees with caring responsibilities 
  • In 2006, affordability of care influenced the departures of 64% of employed carers from the workforce, and 60% of unemployed carers would return to the workforce if care was more affordable.

(NB: sources for our research can be found here).

The first goal of Make Care Fair is to gather 20,000 petitions to present to government to support childcare reform (if you haven’t already done so, please sign the petition here and encourage your friends, family, colleagues, clients and anyone you know to do the same!!)  

The website also gathers comments which are very telling on the impact that childcare is having on all family budgets and workforce participation. Examples of comments are included on the site and we’ve heard it all – from people saying they’ve sold their second car to pay for childcare, that they want to return to work but can’t due to lack of quality accessible care, that the numbers don’t stack up to return to work

As regards the issue of tax deductibility, this becomes particularly crucial for women in leadership roles and that’s why you’re hearing more women in leadership positions speaking out about it.  The simple fact is that the rigidity of the current framework – with long day care centres as the vehicle and means tested/capped rebates for the support – are inadequate for those in leadership positions who have to work longer and less predictable hours than this model affords. (by the way this model also doesn’t fit anyone working shifts like nurses, or deployments/travel like defence force)  

Ask any senior professionals how they manage work and family and they always have a common denominator: in home care.  They’ll also tell you that this represents the single biggest cost related directly to their income earning: they can’t earn assessable income without incurring directly related childcare costs, so why shouldn’t this cost be an allowable deduction against their taxable income?

Ask any employer what the key obstacle is to getting women back to work after parental leave and they will tell you the same thing: childcare and in home care.  Yes, some employers have gone down the route of employer sponsored childcare but it’s not what most women want.  They want CHOICE when it comes to the care of their children, and most want in home care if they can afford it.  But it costs in the vicinity of $80k from post tax dollars to get a quality professional carer to work in home, so not everyone can afford it, especially if you’re still in the leadership pipeline.

Our tax legislation deliberately disallows this expense as a deduction against taxable income which in my mind (as a Certified Practising Accountant) is inconsistent and unfair.  We can claim a deduction for motor cars, mobile phones, even ipads and corporate wardrobe – yet childcare is often the single biggest and most directly related cost of earning income and it is disallowed.

The biggest objection I hear from policy makers regarding extending child care support to deductibility or broader relief is that the current rebate structure is more beneficial than deductibility for lower income earners, and that in fact deductibility will only benefit high income earners so it’s unfair.  My opinion on this is that there should be a choice as to which system parents adopt – and that a senate report under the Howard Government identified a positive financial impact to the economy of deductibility.  But it’s also worthwhile pointing out just how significant childcare costs are.

Families availing of long day care centres in Sydney and Melbourne and other major cities are paying $120+ per day full-time child care – or more than $30,000 per year per child, from after tax dollars.  Double that for 2 kids and you very quickly see that at $60k post tax – you have to earn at least $120k pre tax just to pay for childcare.  

This is why it’s such a big issue for getting and keeping women in senior roles – it just doesn’t make financial sense in the current structure for them to work in the pipeline roles that will fill the future executive roles they’re capable of performing.

The 50 per cent rebate for out-of-pocket child-care expenses cuts out at just over $8,000 per child per year (which of course will soon be reduced to $7,500 under the new changes announced by the government) and makes no allowance for regional differences. In major cities if you’re paying $120 a day for childcare for one child (and I’ve had readers tell me they’re paying even more than that!!) your rebate caps out after 25 weeks [a cost of $15,000 qualifying for $7,500 rebate] – and after that you’re paying full tote odds. But if you live in some regional areas where you’re lucky enough to find a vacancy it might cost only $60 a day for the local day care center, so the rebate covers 50 per cent of the full year’s costs. How is this fair?

In the current model where only childcare centres provide for rebates and support, there is a significant black economy of in home carers who are currently not paying tax, earning superannuation or being protected with appropriate insurances and leave entitlements.  Allowing for deductibility of these expenses will legitimise the costs, bring them into the tax system and I think encourage the social shift we need to accommodate the families and workforce of today, and the future.

In any case, the starting point for enabling women to successfully combine their childcare and careers MUST BEGIN with more support, not less.  It’s just a shame the government doesn’t realise this.

I would love to hear your thoughts on this – does it concern you that the rebate is dropping? Would you benefit from more flexible childcare options? As an employer, does it present issues for you?

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