KPMG’s newest proposal, Unleashing Our Potential — The Case for Further Investment in the Child Care Subsidy, prepared in collaboration with Chief Executive Women, pushes for workforce disincentives for secondary earners to be reduced. The aim is to reduce Australia’s workforce participation gap between men and women, especially parents.

The current government child care subsidy is based on family, rather than individual income, and it creates very high work disincentives for secondary earners – most commonly mothers. KPMG calculated the income from an extra day’s work that is lost to income tax and Medicare levy, withdrawn family tax benefit, reduced childcare subsidy and increased out-of-pocket childcare costs – and found the current system has an unacceptably high Workforce Disincentive Rate which impacts mostly mothers as second earners.   Working 4 days instead of 3 days can mean only 12% of pay earned on the 4^th day adds to the family coffers.   

But under KPMG’s proposal, she would keep almost 50% of the money earned by that 4^th day’s work by capping the WDR at the second earner’s marginal income tax rate plus 20% and providing a top-up payment through the CCS system. This would benefit households across the income scale, but especially those on modest incomes who are most affected.  The plan also calls for the withdrawal of the CCS ‘cliffs’ that a family can fall off when just $1 extra earned could lose $5,000 of subsidy.