Comments on: Tax and don’t spend

By: backroom girl

backroom girl — Thu, 03 May 2007 03:33:02 +0000

Rajat - It all depends what you mean by young kids, I guess. The trouble with kids and child care is that I suspect it really is a case of ‘horses for courses’ - I think that child care (even full-time) does no harm to lots of kids, but there are others for whom it is not a good solution. (Of course, I would like to think that my own children are in the ‘not harmed’ category, but they might have another view.)

Putting the money into child care subsidies does of course require government to make an explicit decision that it wants to encourage mothers to work, at least part-time, rather than just hiding behind the official rhetoric that they support all choices. Of course they don’t support all choices equally, as you point out. If they did, perhaps they would have some kind of universal payment for young children, rather than a means-tested one which inevitably has to then be withdrawn when the mother enters the workforce.

But certainly if I had my druthers I would support more money into child care (simplification of the current horrendously complex arrangements would also be good) rather than more means-tested family assistance, which only increases the incentive for women to withdraw from the workforce for long periods of time.

By: Rajat Sood

Rajat Sood — Thu, 03 May 2007 01:26:23 +0000

Whether high levels of workforce participation by mothers with young kids is a good thing per se may be difficult to tell, but I guess the untaxed nature of home work plus FTB Part B creates a distortion in favour of women staying at home.

I think a reasonable outcome (in my dreams) could be to get rid of FTB Part B and use that to fund childcare subsidies. What do you think BG?

By: backroom girl

backroom girl — Wed, 02 May 2007 23:25:34 +0000

“The question is then whether this would be the most efficient way to increase workforce participation.”

“Wouldn’t that introduce a bias in favour of women working for larger companies rather than small to medium firms?”

If you believe, as I do, that women are the most likely source of increased labour force participation (prime age women is the main group where labour force participation in Australia lags behind most of the developed world), then additional subsidy for child care, one way or another, will probably be required. Either that, or fertility will continue to fall (resume falling).

In the end, while child care is not solely a women’s issue, most people would see it as a cost that effectively falls on women, as predominantly second earners. This does mean that many women do face a financial barrier or disincentive to working that is not apparent to most men.

As to whether women might have a preference to work for bigger organisations, I would have thought that is already the case - as well as a better career structure, larger firms (and government departments, of course) are much more likely to offer benefits such as paid maternity leave, permanent part-time work and other ‘family-friendly’ flexibilities that women are likely to be seeking.

By: Sinclair Davidson

Sinclair Davidson — Wed, 02 May 2007 01:09:29 +0000

Maybe.

By: Rajat Sood

Rajat Sood — Wed, 02 May 2007 00:57:23 +0000

Wouldn’t that introduce a bias in favour of women working for larger companies rather than small to medium firms?

By: Sinclair Davidson

Sinclair Davidson — Wed, 02 May 2007 00:28:45 +0000

I wouldn’t necessarily make childcare tax deductable for consistency reasons. I would only make it deductable if it increased participation. Removing child care FBT for companies would promote participation by definition (although the effect my be small, I don’t know). Companies that wanted to employ more women would then compete on working conditions.

By: Rajat Sood

Rajat Sood — Wed, 02 May 2007 00:09:43 +0000

Well, obviously we get the childcare workers people are willing to pay for! Arguably, quality childcare confers some positive externalities, but childcare is already heavily subsidised. If you removed FBT on corporate childcare, presumably you would also have to make childcare fully (privately) tax deductible to ensure consistency with those who don’t have access to corporate childcare. The question is then whether this would be the most efficient way to increase workforce participation.

By: Sinclair Davidson

Sinclair Davidson — Tue, 01 May 2007 23:47:20 +0000

If the government wanted to boost child care places they’d make it easier for companies to provide that care on site (or in close proximity). I seem to recall there was a change several years ago that added to corporate child care costs. So reverse that decision, whatever it was. I would also consider removing fringe benefits tax on company provided child care (it would be a small thing to do, but there are probably heaps of small things that can be done - not to mention the big things that should be done).

By: Andrew Norton

Andrew Norton — Tue, 01 May 2007 23:39:16 +0000

Though childcare is an example of why price increases in particular sectors are not necessarily bad - higher pay is needed to attract and retain quality workers in the industry.

By: Rajat Sood

Rajat Sood — Tue, 01 May 2007 23:32:09 +0000

Here’s an interesting comment in today’s Age:

“Macquarie Research head of economics Richard Gibbs said tax cuts would be unwise, and spending should instead focus on areas that boosted productivity such as infrastructure, education and child care.”

Ok, perhaps childcare could increase labour supply by more than it increases labour demand. But surely spending on infrastructure or education will boost demand by far more than supply in the short to medium term (1-3 years)? And if so, surely that would be more inflationary than tax cuts at this stage in the cycle? I thought private sector economists were usually more measured when they opined to the media.