A $5 billion-a-year spend on childcare subsidies could result in an $11 billion-a-year increase in GDP, says Grattan Institute


One fast way to recharge the economy would be to make childcare cheaper for parents, leading to greater female workforce participation, and $150,000 in additional lifetime earnings for the typical Australian mother.

That’s according to the Grattan Institute, which has released extensive new figures on the opportunities available for Australia in investing in childcare.

Grattan estimates that a $5 billion-a-year spend on childcare subsidies could result in an $11 billion-a-year increase in GDP, and has highlighted how policy, cultural and social factors are coming together to prevent many mothers from working the paid hours they would prefer.

The report says addressing this economic reform now would be significant for Australia’s COVID-19 recovery — notably in that it would enable parents who have lost work due to COVID- to keep their kids in care in order to be “work ready” for opportunities that emerge.

“We can hardly be surprised that many mothers conclude that working an extra day for no or virtually no take-home pay makes no sense,” says Grattan Institute CEO and report lead author Danielle Wood.

“And Australia’s high out-of-pocket childcare costs bite even harder now for families that have lost jobs or hours because of the COVID crisis.”

She says more affordable childcare for parents is a win-win.

“It should be central to the government’s plans for lifting Australia out of recession.”

The Grattan report recommends raising the subsidy for low-income families from 85% to 95%.

It also wants to see the tapered subsidy system as families earn more, flattened and simplified, along with a review of both the annual cap and the hours’ rate cap.

It also recommends the ACCC does a market study to determine how a lack of competition in certain areas is putting upward pressure on fees.

No family would be worse off under Grattan’s proposal, according to the report, and 60% would pay less than $20 a day for each child in care. The changes are estimated to lead to a 13% increase in hours worked by a secondary-earner with young children.

Grattan identified a number of issues affecting women’s workforce participation, many centred around the costs of childcare and those financial disincentives that can keep mothers working fewer hours than they’d prefer.

It also notes that Australian women continue to do the bulk of the unpaid work and care at home, with recent data showing how men’s working hours and household contributions change very little after having a child, in stark contrast to women’s contributions.

In addition to addressing childcare, Grattan also recommends an extension of the federal government’s parental leave scheme to offering six weeks under a “use it or lose it” basis for each parent, at the minimum wage. From there, the report suggests 12 additional weeks should be offered, and able to be shared between parents. It has costed this at $600 million a year, but say it would pay off in enabling more fathers to spend time with their children in their child’s critical first year

While Australia boasts a workforce participation rate higher than the OECD average, women are still more likely to work part-time — the typical Australian mother with pre-teenage kids is working 2.5 days a week.

Women with children also earn a massive $2 million less over their lifetimes than men with children, according to Grattan.

“Policy interventions that yield economic and social dividends of this magnitude are rare,” write the report authors.

“And given the current economic malaise, Australia cannot afford to leave them on the shelf. The government should make cheaper childcare a key part of its economic reform package.”

This article was first published by Women’s Agenda.

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