Means testing is bad for the economy

Why means testing childcare rebates is not only bad for women, but bad for the Australian economy.

2205 0

Will the Federal Budget have anything further to add for families on reducing the cost of childcare? Probably not. But in this Financy article one contributor who asks to remain anonymous, thinks recent reforms have gone too far.

Last year the government announced the most substantial childcare reforms in a decade, but many women on higher incomes are now significantly worse off.

There are 100,000 families who do not meet the activity test and 15,000 families who do not meet the income test.

I am from one of those people.

Before you start pulling out the violins, hear me out.

Like many parents returning to work full time, putting my daughter in childcare was one of the hardest decisions I have had to make, but we had to consider the financial implications.

I pay about $26,000 per year to send my daughter to childcare in order to earn a gross salary of $150,000.

After tax and HECs repayment, my take home pay, is $103,000.

A pretty good return, allowing me to earn about four times the cost of childcare.

Under the proposed reforms, the cost for my daughter to be in childcare will be $35,000 per year.

I am currently pregnant, which will take that cost up to $70,000 for both children, leaving only $33,000 of my income.

Now my return is 1.3 times

Returning to work is starting to look more and more like a bad investment. 

In the short-term, let’s say I decide to leave my job because there is no opportunity for flexible working or reduced hours.

I still have my two children in childcare for 1 day per week.

I now qualify for the 20 per cent rebate.

The net childcare cost to my family will be $22,000 after receiving a $2,808 rebate.

So, not only is the government losing my $46,000 per year in net taxes, they are now paying me an additional $2,808, meaning a net loss of almost $48,808 to other tax payers.

The long term financial loss to the community is even greater – at least two million dollars in taxes that I would have paid during the rest of my working life, had I continued on the career trajectory I was on.

Now, having taken time out of my career, I will fall behind my peers.

By the time I return to work, I will be so behind them that, if hireable at all, I will return to a potentially less stimulating and lower paying job.

The skills which I could have developed and allowed me to excel in my career have now dwindled.

Many women have faced this very scenario and have decided to opt out of the paid workforce, which is a significant loss to society.

Childcare fees and the childcare rebate are not the only factors that drive people’s decisions to stay or leave the paid workforce, but it is a very real consideration that many women face.

In most cases, when women leave the workforce they are giving up financial empowerment and independence which can be a major obstacle in overcoming life’s challenges.

The author is an investment banker and private equity investor with over 11 years experience in the industry, working across Asia-Pacific. She is currently a full-time working mum with a daughter and one on the way. She is passionate about promoting financial literacy, independence for women and overall the enhancement of gender equality in all aspects of work and life.

Subscribe to Financy®

Get your Financy fortnightly fix with Financy Rewards, content and more. Plus each quarter you'll receive the latest Financy Women's Index, helping you keep pace with women's financial progress.

In this article