KPMG response to government childcare announcement

KPMG

KPMG welcomes the government’s $1.7 billion investment in childcare, which will help address some of the largest workforce disincentive rates impacting families, and in particular women wanting to work more hours.

A KPMG report last year proposed raising the federal government’s Child Care Subsidy to a nearly fully-funded 95 percent, from its current 85 percent. The government has chosen to follow this recommendation for families with two children or more in childcare.

The paper also proposed the elimination of per-child subsidy caps, and an increase in the maximum subsidy for the lowest income families. Today’s package removes caps for all families but also targets the maximum benefit at those households with income under $130,000.

Alison Kitchen, KPMG Australia Chairman, said: “It is heartening that the government has addressed many of the major affordability issues in childcare, which is one of the key problems facing working parents. Too often, those who want to contribute more to household income find themselves looking at an insufficient financial reward from taking on extra work, once out of pocket child care costs are deducted.”

“It is especially pleasing that the government has focused its efforts on families with more than one child in long-day care. These households experience a relatively high workforce disincentive rate as the Child Care Subsidy currently reimburses a maximum of 85 percent of the child care costs for each child, which can cause a significant financial burden. This measure is something KPMG has supported for a long time.”

“In some cases our research found women would actually lose money through working a fourth or fifth day, as things stand. People often face ‘cliffs’ in the current system where one more dollar of income would lead to thousands of dollars lost because of how the Child Care Subsidy interacts with the income tax and family tax benefit systems. It is very welcome that this is now being addressed, and people will be incentivised to work an extra day or two if that is what they want to do.

KPMG is particularly pleased to note the government’s announcement stresses the fact that the additional costs of the plan will over time be outweighed by the economic activity generated.

Alison Kitchen said: “We are very clear that this additional childcare support will significantly increase women’s participation in the workforce, which our modelling has shown will be a major long-term boost to the economy. It is very encouraging that the government sees this in positive terms for economic growth rather than welfare.”

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