A 95% childcare subsidy would boost GDP by up to $7.4 billion annually, KPMG says

Increasing the federal government’s childcare subsidy to a nearly fully funded 95% would boost GDP by up to $7.4 billion per year, at a cost of $5.4 billion a year, a new report from KPMG has found.

Such an increase to the childcare subsidy would incentivise parents to increase their participation in the paid workforce and help rebuild the Australian economy, as it enters its first recession since the 1990s.

KPMG’s report — The Child Care Subsidy: options for increasing support for caregivers who want to work — also highlights that, over a 20-year period, a near fully funded childcare model could increase GDP by up to $10 billion through the cumulative benefit of parents’ increased productivity.

There is also a substantial advantage when the social and cognitive development benefits of a child attending additional days of early childhood education and care are considered.

Under the current childcare subsidy, the federal government subsidises up to 85% of childcare costs, but this still leaves families with significant out-of-pocket costs.

The current model also creates a disincentive for secondary earners in a family, most commonly mothers, to take up more hours of work, as it can leave families worse off.

“Affordability of childcare looms as one of the key issues facing working parents as we look to rebuild the Australian economy through COVID,” KPMG chair Alison Kitchen says.

“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. This occurs across all family income levels, as our modelling shows.

“A near fully-funded childcare system would be a big step towards gender equity, both in the workforce and society, as the unequal burden of care responsibility, borne mostly by women, has significant adverse consequences.

“The increased social and cognitive development of the children attending the additional days of childcare is also an important consideration,” Kitchen said.

Sue Morphet, president of Chief Executive Women, said increasing women’s workforce participation by making childcare more affordable is one of Australia’s biggest economic opportunities.

“More women earning more puts more discretionary spending power into household budgets.

“This will be vital to stimulate the economy post-COVID in the retail, hospitality, entertainment and tourism sectors that have been hardest hit by job losses, particularly for women and young Australians.”

“KPMG estimates the proposed reform to the childcare subsidy would enable between 160,000 and 210,000 additional working days per week, which equates to 30,000 to 40,000 full-time jobs.”

KPMG’s report also offers an alternative option that could be considered as an interim measure.

It involves the elimination of per-child subsidy caps and an increase in the maximum subsidy for the lowest-income families.

This measure is estimated to boost annual GDP by $5.4 billion, at a cost of $2.5 billion.

This article was first published by Women’s Agenda.

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