There are Many Things More Important than Working

Australian Polity

Volume 5, Issue 2

By

Senator Matthew Canavan, Nationals Senator for Queensland

Australian policymakers have an unhealthy obsession with boosting workforce participation. The otherwise very useful, recently released intergenerational report is peppered with statements of the need to boost the number of Australians working. The report states that: “Continued steps to boost productivity and encourage higher workforce participation will be critical to driving this economic growth.”1

From reading just the Executive Summary of the report, you get the impression that Australia must be a laggard when it comes to working, and that the common jibe about Australian’s laziness has some truth. But you would be wrong.

Later in the report, there is a comparison between Australia’s rates of workforce participation and those of 33 other OECD countries.2 A greater proportion of Australians work than 29 of those other countries; our rate of workforce participation is the fifth-highest in the OECD. We are only surpassed by Iceland, Switzerland, New Zealand and Canada.

This is hardly indicative of a crisis, and the evidence simply does not justify the excessive focus workforce participation receives in the Australian policy debate.

Much is made of the higher rates of female workforce participation in New Zealand and Canada – given that they are similar countries to Australia. New Zealand’s female participation rate is 3.2 percentage points higher than Australia’s, and Canada’s is 2.8 percentage points higher.3 Like most statistics, though, these don’t escape Disraeli’s warning about their truth.

When you look deeper, Australia’s performance is not as dire as made out. For young females, Australia has a higher rate of female workforce participation than Canada or New Zealand (see chart). Above that age, Canada’s rate of female participation rate jumps higher – although that has probably more to do with Canada’s lower fertility rate of 1.6 babies per woman, compared to more than 1.9 in Australia and New Zealand.4 (Quebec also provides generous childcare subsidies that cap the cost of childcare at just CAD$7 per day.) New Zealand’s female participation rate then rises higher than both Australia’s and Canada’s for women older than 45.

Female Participation rates in Australia, New Zealand and China

There are further complications when comparing Australian data with that of overseas countries.

As noted by the Productivity Commission, in other OECD countries women on paid or unpaid maternity leave are counted as employed, whereas in Australia a mother must have received payment in the last 4 weeks to be counted as employed (even though mothers can receive up to 24 months of unpaid leave under Australian laws).5
Female workforce participation rates for mothers with children from 0 to 3 years and school-age is on par with the OECD average, or slightly above. Australia’s female participation rate for mothers with children between 3 to 5 years old is below average (60 per cent compared with 64 per cent). This indicates that it is perhaps the more generous access to early childhood education (not childcare) that cause our female participation rates to be lower.6
The rate of single parent families not working in Australia is much higher than the OECD average (43 per cent compared with 33 per cent).7

It is worth asking why female workforce participation for women older than 45 is higher in New Zealand and Canada than in Australia. But then, the workforce participation outcomes of people aged over 45 would have been influenced by government policies stretching back decades. So, making forthright conclusions on the effectiveness of current policy settings from these outcomes is fraught.

This is especially so because Australia’s support for working mothers has increased significantly in the past decade. Ten years ago, we spent $1.5 billion a year on childcare and parental leave. Last year, we spent $7 billion.8 This increase has little to do with growth in numbers of children in childcare and is mostly because of substantial increases in childcare assistance.

In 2004, the Howard government introduced a non-means tested 30 per cent rebate on childcare fees. In 2008, the Rudd government increased the rebate to 50 per cent of child care fees up to a maximum of $7,500.

There is now talk of increasing childcare assistance even further before the recent increases in assistance have had their full influence on a cohort of women through their working lives.

Childcare is expensive but, in making decisions about funding, we should be mindful of more than just its impact on workforce decisions. For one, encouraging more people into paid work does not necessarily increase the number of people doing “work”. When I have a week “off” and look after the kids full time, I realise pretty quickly that my wife (who is a stay-at-home Mum) works harder than.

If my wife instead paid someone to look after our children, more people would be in the paid workforce, but the amount of work done across the economy would not necessarily increase. Instead, unpaid work would just be substituted for paid work. If we all paid each other to do each other’s laundry, measured GDP would increase, but it is hardly the pathway to economic prosperity.

Second, and more importantly, working for money is not an end itself. Most of us work to allow us to do other things, feed and clothe ourselves and our family, put our kids in the best schools and afford a holiday from time to time. People work to live, not live to work.

If we increase subsidies for people to be in paid work (through, say, increased childcare funding) we will encourage them to do less unpaid work – such as stay at home and look after their own children. The decision to stay at home and look after one’s own children is a costly one, indeed by definition is the more costly decision – you give up 100 per cent of your second income to do so.

There is a competing choice and trade-off for every parent. We would like to spend more time with our children but also provide them with the best schooling and education, and of course fulfil our own working and other ambitions. It can become dangerous when governments seek to influence and distort these choices.

The Productivity Commission’s report into early childhood and childcare usefully outlines these competing objectives. Our early childhood education and childcare sector has two main goals: workforce participation and childhood development. The focus is often on the former of these, but the latter is just as, if not more, important.

The Commission rightly points out that high quality childcare helps kids get a head start, especially in the year before school. Yet, the Commission also highlights that childcare may not be the best option for very young children. There is ample evidence that for children under 2 years of age, the best outcome is if Mum or Dad can stay home from work and provide full time care and nurturing. As the Productivity Commission has stated:

Most of the more recent evidence tends to support the view that the use of non-parental care/child care (usually necessitated by maternal employment) when initiated within the first year of a child’s life can contribute to behavioural problems and, in some contexts, delayed cognitive development (Han et al. 2001; Hill et al. 2001; Waldfogel et al. 2002; Brooks-Gunn et al. 2002; Baker et al. 2005)9

Our tax and welfare system deters rather than supports parents to make the costly choice of looking after their own children. For example, a household with one working parent (and two children) earning $80,000 a year pays $19,100 in net tax, but a household with two working parents earning $40,000 each (the same total of $80,000 a year) pays $9,800 in tax.

Staying home to look after a new baby, for a below average income family, is an almost $10,000 a year decision. It is even more costly for households with higher incomes. And, these sums do not take into account the generous childcare subsidies.

This taxation disparity has increased in recent years. Double-income families have access to two tax-free thresholds, whereas a single-income family has access to only one. The tax-free threshold increased significantly in 2012 – from $6000 to $18,200. That increase has added an additional $1000 to the gap between the tax paid by the single income and double income families.
The difference in tax paid between a single income and double income family is larger in Australia than most others. A recent OECD report found that Australia has the fifth most unattractive tax system for single income families.

Canada was also a country down on that list. Last year, the Canadian government announced more funding for childcare couples with the introduction of a limited form of “income splitting”. Income splitting allows a family to split income between the parents for tax purposes. This effectively allows double income families to access the two tax-free thresholds they are denied in our system.

Under the Canadian proposal, parents will be able to transfer up to $50,000 between each other to reduce the tax they pay. This would allow parents to respond to a new baby by, say, one working harder, not both working, so that one of them can devote themselves to the care of the newborn.

Given the state of our budget, we might not be able to afford the Canadian option.

Nonetheless, the Australian Government’s commitment to a redesigned childcare system gives us the opportunity to at least design our system in accordance with the evidence about what’s best for the child.

For a family which has a child under 2, why not give them the financial flexibility to send their kids to childcare or stay at home themselves? Instead of paying subsidies to childcare centres, why not pay the parents and let them decide who is best to look after their child?

Why are we designing a system that pays someone to look after another person’s kids but won’t support a parent to look after their own?

 

REFERENCES

  1. Australian Treasury 2015, 2015 Intergenerational Report: Australia in 2055, circulated by The Hon. Joe Hockey, Treasurer, March, p. xxi.
  2. Australian Treasury 2015, 2015 Intergenerational Report: Australia in 2055, circulated by The Hon. Joe Hockey, Treasurer, March, p. 20.
  3. World Bank 2015, World Development Indicators, http://data.worldbank.org/indicator, (accessed 15 March 2015).
  4. Australian Treasury 2015, 2015 Intergenerational Report: Australia in 2055, circulated by The Hon. Joe Hockey, Treasurer, March, p. 9.
  5. Productivity Commission 2014, Childcare and Early Childhood Learning, Inquiry Report no. 73, Canberra, pp. 822-824.
  6. Productivity Commission 2014, Childcare and Early Childhood Learning, Inquiry Report no. 73, Canberra, pp. 827-828.
  7. Productivity Commission 2014, Childcare and Early Childhood Learning, Inquiry Report no. 73, Canberra, pp. 832.
  8. Productivity Commission 2014, Childcare and Early Childhood Learning: Overview, Inquiry Report No. 73, Canberra, p. 2.
  9. Productivity Commission 2009, Paid Parental Leave: Support for Parents with Newborn Children, Report no. 47, Canberra, p. 4.39.

 

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