7.1
For Australia to improve its support of people balancing work and care, and to increase workforce participation for carers and especially women, it must reconsider its workplace relations system. With regard to workers providing informal care, this means examining the adequacy of leave entitlements (both paid and unpaid), and income support payments offered through the social security system over the course of people's lives. Linked to this is a need to consider whether the tax and transfer system and the superannuation guarantee are working as they should to support working carers.
7.2
This chapter outlines some of the leave entitlements available to working carers, and the financial supports which are currently in place that are aimed at encouraging greater workforce participation. It also looks at family tax benefits, activity tests for support payments and the impact on women's retirement of a lack of access to superannuation, alongside evidence received for reform in these areas.
Access to leave for working carers
7.3
Chapter 5 of the committee's Interim Report detailed the national leave entitlement system, and the types of leave available to employees, including:
paid personal/carer's leave;
family and domestic violence leave;
7.4
This section puts forward the evidence received about the adequacies of leave entitlements, with a focus on paid and unpaid carer's leave and on paid parental leave (PPL).
Paid parental leave
7.5
As laid out in the Interim Report, the Paid Parental Leave Act 2010 (PPL Act) provides financial support to eligible working parents of newborn or recently adopted children, via PPL.
7.6
At present, PPL is paid to the child's primary carer for up to 18 weeks of pay (90 days), based on the rate of the national minimum wage. Working fathers and same‑sex partners also able to access two weeks leave paid at the national minimum wage, if eligible (known as Dad and Partner Pay).
7.7
The PPL Act is designed to complement the Fair Work Act 2009 (Fair Work Act), by providing up to 12 months of unpaid leave (or 24 months with the employer's agreement) for employees with a minimum of 12 months continuous service.
7.8
However, an employee is not entitled to parental leave under the National Employment Standards (NES) unless they have 12 months of continuous service or are a 'long term casual employee'.
Inadequacies with paid parental leave
7.9
The Parenthood observed that Australia's 'inadequate' PPL entitlements promotes and entrenches prevailing stereotypical gender roles—of the mother as the primary carer, and the father as the primary earner.
7.10
Mr James Fleming, Executive Director of the Australian Institute of Employment Rights, called Australia's PPL 'inadequate', and argued that this, in combination with unaffordable childcare, made a significant contribution to gender inequality in Australia. Mr Fleming explained that this:
… leads to reduced women's workforce participation. It hinders women's career progression, contributing to dominance of men in more senior roles and contributing to the gender pay gap. It reduces women's superannuation in retirement and it's also bad for men, who often miss out on crucial bonding and caring experiences with their children, and this hinders childhood development.
International comparisons
7.11
Evidence to the committee suggests that the current structure of PPL in Australia is not on par with comparable international jurisdictions, and does not support an equal distribution of household duties and caring responsibilities.
7.12
The Parenthood submitted that among Organisation for Economic Co‑operation and Development (OECD) nations, Australia has 'one of the least adequate statutory paid parental leave programs' with the OECD average more than 50 weeks of paid leave. Further, less than 50 per cent of the largest employers in Australia offer any paid parental leave, and Australian fathers taking 'less than 20 per cent of the paternity leave days as their global peers'. The Parenthood made that point that:
Caring patterns that are established in the first year of a child's life persist so the underutilisation of parental leave among fathers entrenches stereotypical gender roles. The gap between how mothers and fathers work, care and earn after a baby is more pronounced in Australia than in comparable nations.
7.13
The committee's Interim Report noted that countries such as Finland, Germany, Norway and Iceland had more equitable and effective PPL schemes. Norway, for example, has 49 weeks of parental leave—15 weeks exclusively for the mother and another 15 exclusively for the father, with the remaining 16 weeks to be shared; the father-specific parental leave provision is non-transferable, and is lost if not used.
7.14
Mr Fleming informed the committee of the more generous scheme in Sweden and Nordic countries. Mr Fleming said that in Sweden, a total of 480 days paid leave is provided, and its scheme has been shown to increase women's workforce participation and improve gender equality. Mr Fleming explained how the entitlement operated:
In Sweden, a total of 480 days paid leave is provided, to be shared by the parents, with a minimum of 90 days to be taken by each parent. The first 390 days are generally paid at 80 per cent of someone's income, up to a cap. This, and affordable childcare, are sufficient to ensure parents can return to work, with no gaps in income, whilst having a child—and every child has a right to a childcare place. Parents have broad discretion to combine the leave with other paid leave or unpaid leave and spread it out evenly over many years. They also have broad discretion to return to work part time at pretty much any pace they like. One day per week and even half and quarter days are permitted.
Calls to increase paid parental leave
7.15
As part of the October 2022 Budget, the Australian Government announced an increase to the PPL scheme, to 26 weeks by 2026.
7.16
Services Australia explained that from 1 July 2023 (for children born or entering care on or after this date), the PPL available to primary carers and Dad and Partner Pay would be combined into a single 20‑week (100 day) payment. From 1 July 2024, PPL will then increase by two weeks each year until 1 July 2026 when 26 weeks is achieved.
7.17
In addition, the revised PPL scheme will include a 'use it or lose it' provision and will also allow for parents to take PPL at the same time. Services Australia explained that under the changes:
Parents can share their Parental Leave Pay with each other and they can even take days at the same time. This can be at the same time as paid leave, and between periods of paid work. This will give families more flexibility to manage their work and care arrangements.
Part of Parental Leave Pay will be reserved for each parent to use. Any unused portions of Parental Leave Pay days will be lost if not used before a child turns 2. This is to encourage both parents to access the payment. Single parents will be able to get the full amount of Parental Leave Pay.
7.18
Compelling evidence was put to the committee that, while the increase of PPL to 26 weeks was welcomed, further reform in this area was needed to help address the imbalance in caring roles between men and women, promote better engagement for women with paid employment, and to better support children in the earliest stages of life.
7.19
The Centre for Future Work at the Australia Institute, for example, endorsed the PPL scheme being longer in duration, providing a higher level of income replacement while including superannuation payments, and should be better integrated with the Early Childhood Education and Care (ECEC) system. Further, a redesigned PPL scheme should 'support greater sharing of parental care, including by encouraging fathers to take leave to care for their children'.
7.20
The Parenthood noted the following benefits have been associated with longer periods of PPL, and with greater uptake of paternity leave:
long-term improved maternal health and improved parental relationships;
an increase in the proportion of household income earned by women;
a more equitable division of housework and enhanced gender equity in caring roles;
better outcomes for children through engaged fatherhood; and
enhanced workplace diversity, with research from Norway indicating that the take-up of parental leave influences gender equality in management roles.
7.21
The Parenthood recognised that there were wide-ranging benefits of PPL:
The benefits of paid parental leave are wide-spanning – for children, parents, government and the economy. Parental leave has been identified as 'one of the few policy tools available to governments to directly influence behaviour among parents'. As this policy impacts the start of a child's life, and sets up a pattern for parental involvement, it is critical to get right. Parental leave policies also have the potential to enable families to thrive, and to support gender equality, including through the redistribution of unpaid care.
7.22
The Parenthood called for an Australian PPL scheme of 52 weeks, equally shared between both parents, at full pay and attracting superannuation. It was argued that this would cost $10.2 billion per annum by 2050, but would lead to a gross domestic product (GDP) increase of $116 billion (2.9 per cent) by 2050 from 'higher female participation and productivity due to less time out of the labour market'.
7.23
The committee recognises the considerable benefits of reform in relation to PPL which are shown overseas, where more men are taking up more leave and unpaid caring responsibilities in the home, and babies benefit from more time with parents in the early stages of their development.
Paid and unpaid carer's leave
7.24
While canvassed in more detail in the Interim Report, it is worthwhile outlining the legislative framework for both paid and unpaid personal/carer's leave.
Paid carer's leave
7.25
Employees are entitled to 10 days of paid personal/carer's leave (also known as sick leave, carer's leave, or personal leave) unless they are employed on a casual basis, and have been with an employer for less than 12 months (that is, paid personal/carer's leave is unavailable to casuals and new employees). The entitlement to paid personal/carer's leave:
… accrues progressively during a year of service (other than periods of employment as a casual employee of the employer) according to the employee's ordinary hours of work, and accumulates from year to year.
7.26
An employee may take paid personal/carer's leave:
when the employee is unfit for work due to personal illness or injury; or
to provide care or support to a member of the employee's immediate family or household who is affected by illness, injury or unexpected emergency.
7.27
Importantly, the Fair Work Ombudsman (FWO) explains while an employee may take carer's leave to care for an immediate family or household member, this leave comes out of the employee's personal leave balance.
7.28
For the purposes of accessing personal/carer's leave, a 'household member' is defined as any person who lives with the employee, while 'immediate family' is defined as a:
spouse or former spouse, or de facto partner or former de facto partner;
child, parent, grandparent, grandchild or sibling of the employee's spouse or de facto partner (or former spouse or de facto partner).
Unpaid carer's leave
7.29
The Fair Work Act provides casual and permanent employees with two days of unpaid carer's leave, which can be accessed for each occasion when a member of the employee's immediate family or household requires care or support because of a personal illness or injury, or due to an unexpected emergency.
7.30
Further, the Fair Work Act provides that an employee cannot take unpaid carer's leave during a particular period, if they could instead take paid personal/carer's leave; and, full-time and part-time employees can only access unpaid carer's leave they have don't have any paid sick or carer's leave remaining.
Issues with the current leave system
7.31
As explained in the Interim Report, the evidence shows that Australia is behind comparable nations when it comes to leave entitlements, which is particularly detrimental to those balancing work and care responsibilities. There was also a gendered element to those taking carer's leave, as women are far more likely to be informal carers than men and more likely to be employed in jobs without paid leave.
7.32
The committee, in its Interim Report, raised some initial concerns with the structure of the personal leave entitlement framework, based on the evidence it had received, including that:
the Fair Work Act does not provide paid carer's leave to casuals;
the leave entitlements are too narrow in scope, lack flexibility and provide insufficient time for leave;
the definition of 'carer' and its limited applicability to 'immediate family' and 'household members' only, which are narrowly defined; and
working carers are losing access to leave entitlements when taking personal leave to care for others, as personal and carer's leave is offered as a single entitlement.
7.33
Some of the evidence received on these issues is discussed below.
Carer's leave for casual employees
7.34
Evidence presented to the committee spoke in favour of extending paid carer's leave to casual employees.
7.35
The Work + Family Policy Roundtable (Roundtable) pointed to research showing that the lack of paid carers leave for casuals results in around a quarter of employees not having access to 'paid leave when they provide care for, or experience critical illness or death of, family/household members'. As the Roundtable argued, 'paid leave policies that deliver job protection and time away from work for those with care responsibilities are essential to building gender equality in the workplace and in the home', and it called for casuals to have access to paid personal and carer's leave.
7.36
Ms Abbey Kendall, Director of the Working Women's Centre South Australia (SA), made a compelling case in support of the extension of paid sick and annual leave to casual employees, and said that:
Where we are trying to create workplaces and workplace conditions that give workers more security and a reasonable expectation of the work that they're going to be doing over the next whatever period of time—the next year, the next two years, the next three years—as well as allowing people to be both workers and carers, as well as allowing people to have rest time and to move away from this idea that we're just all sort of reacting to the direction of these big corporations and robotic, transactional workplaces, I think it's really important that workers have the ability to access annual leave and sick leave.
Accessing unpaid carer's leave
7.37
As highlighted by Carers New South Wales (NSW) and other stakeholders, there are currently no provisions in the NES for an employee to take extended unpaid leave for the purpose of caring responsibilities.
7.38
There was varying support in evidence for the provision of extending unpaid leave entitlements to informal carers. Some witnesses, including the Australian Industry Group (Ai Group), were of the view that existing provisions under the Fair Work Act are sufficient, particularly when combined with other legislative protections. Ai Group noted that while the Royal Commission into Aged Care Quality and Safety (Aged Care Royal Commission) Report found that the Fair Work Act didn't specifically provide for an extended unpaid leave entitlement for the purpose of caring for a person who is elderly and frail, this should not be seen as the Fair Work Act being deficient.
7.39
Ai Group warned that that extending leave provisions could 'create adverse consequences for the sustainability of the aged care workforce', perpetuate the gender pay gap, and have negative impacts on employers. Instead it advocated for greater education, and promotion of flexibility on the part of employers within the existing framework.
7.40
Some witnesses raised concerns about the impact of unpaid carers leave on employers, in particular small businesses, as well as the impacts on employers paying superannuation on unpaid leave, although some witnesses envisaged that the government would pay superannuation contributions on such leave.
7.41
The Australian Services Union submitted evidence against providing extended unpaid leave entitlements to informal carers, arguing that increased reliance on informal care could undermine efforts to improve quality, professionalism, and sustainability in the aged care and disability sectors, as well as gender equity goals—while placing greater expectations on unpaid carers.
7.42
This position was supported by other witnesses who argued that extended unpaid carers leave was problematic because of its continued reliance on informal care. These submitters argued in favour of fundamental changes to the paid care sectors.
7.43
However, several other witnesses, including the Law Council of Australia and the Shop, Distributive and Allied Employees' Association (SDA), considered existing provisions under Fair Work Act to be inadequate and that 'greater flexibility in work arrangements can have the potential to relieve some of the impacts that informal carers experience'. Carers Australia also advocated for equitable access to unpaid carers leave, stating that it:
… is strongly of the view that such leave needs to be made available to carers of all Australians, whether they're caring for someone under or over the age of 65. To confine it to carers of the aged would be inequitable and illogical and would unnecessarily and unhelpfully create two tiers of carers.
7.44
The Law Council noted that there may be greater costs to employers for recruitment, training and output, but that it may result in a higher proportion of people participating and remaining in the labour market and 'may also improve productivity in some cases'. It also submitted that 'any increase in informal, homebased care is also likely to take some pressure off the residential aged care system' with women likely to be the primary beneficiaries.
7.45
Carers NSW also submitted that existing entitlements were 'limited in their uptake and effectiveness' and instead 'proposed a model of short, medium and long term leave' in their submission to the Productivity Commission inquiry.
7.46
Lived Experience Australia and the SDA noted, however, that several unintended consequences could arise from informal carers accessing extended unpaid leave, including the prospect of increased isolation, loss of connection to social ties through work, loss of skills and difficulties adjusting once back in the workplace.
7.47
As a way forward, the SDA suggested that a 'review of government payments that subsidise periods of unpaid care be conducted' to minimise the economic impact on carers and that extended unpaid carers leave could be considered active service.
7.48
As detailed in the Interim Report, the Productivity Commission is examining the 'economic and social costs and benefits of providing an extended unpaid leave entitlement to informal carers of older Australians under the NES'. It is required to consider the application of paid leave or long‑term unpaid carer's leave for other types of care, including caring for disabled people. The Productivity Commission explained to the committee that:
Existing leave entitlements for carers are intended for brief periods of care to deal with an illness or unexpected event or emergency. The NES does not preclude a business from offering carer leave over and above the minimum standards.
The Commission has been asked to evaluate the possible effects of inserting an entitlement to an extended period of leave to take care of an older person. The terms of reference also ask the Commission what other supports might help carers of older people and whether some of these supports might help other types of carers.
7.49
The committee notes that the Productivity Commission is due to report on its findings in May 2023.
Definitions of 'carer' and accessing carer's leave
7.50
Subsequent to its Interim Report, the committee continued to receive evidence about the statutory definition of 'carer', and its limited scope under the Fair Work Act in relation to accessing personal and carer's leave. Under the current definition, access to this leave is applicable only in circumstances involving 'immediate family' or 'household members'.
7.51
Carers in rural and remote regions, 'sandwich carers' with caring responsibilities for children and ageing parents, as well as carers with diverse gender identities experience additional challenges in accessing formal care for their loved ones and care entitlements and support services for themselves.
7.52
The SDA argued that the current definitions do not consider those who provide care to others in the community, such as extended family, friends or neighbours. It suggested that:
Access to carers leave should be extended to caring for anyone the worker provides care to, regardless of whether they form part of the persons household or immediate family. Families are not singularly defined. People may have different 'family' structures that don't fall into the traditional definition of immediate family and the provision of care to people they recognise as part of their family or community should also be supported.
7.53
Mr Dwayne Cranfield, Chief Executive Officer of the National Ethnic Disability Alliance similarly offered support for broadening the definition of immediate family, or the family unit, for the purposes of carer leave. Mr Cranfield noted this was 'especially crucial for culturally and linguistically diverse (CALD) communities who live in joint families and think of care responsibility as a family community issue', and argued for leave provisions to be available to those close to a family.
7.54
Carers NSW also pointed to the inadequacy of the 'immediate family or household member' definition, saying it could 'create significant barriers to accessing these entitlements for a number of diverse cohorts'. Carers NSW noted that CALD carers often provide care to their extended family, and provided further examples:
Aboriginal and Torres Strait Islander carers may be limited from accessing NES entitlements where kinship systems are not well understood or recognised by employers, such as in instances where care is being provided to a person considered immediate family through kinship systems, but not through a western cultural frame of reference.
Lesbian, gay, bisexual, transgender, queer, intersect and other gender or sexuality diverse (LGBTQI+) carers may also have difficulty accessing these entitlements where same-sex relationships are not recognised or respected as spousal or de facto relationships due to stigma or discrimination. LGBTQI+ carers may also not have their families of choice recognised by employers.
7.55
The issue was summarised by the Centre for Future Work, which explained that:
Leave provisions need to be shaped to support work and care for people with different care responsibilities across their working lives, and they should respond to the needs of diverse family and household situations and different cultural practices.
Leave 'buckets'
7.56
Under the NES, paid personal and carer's leave is combined into a single entitlement. In other words, if an employee needs to care for others or care for themselves, this leave all comes from the one entitlement—there is no distinction between the types of care being needed or provided.
7.57
The committee began to explore this issue in its Interim Report. The evidence of Carers Australia was noted in that report, showing that 14 OECD countries with similar economies, carer population profiles and similar incentives for carer's leave, did not combine sick leave and carer's leave into a single entitlement.
7.58
Carers NSW made the important point that combining paid sick and carer's leave could 'significantly disadvantage working carers who are living with disability or chronic illnesses themselves', especially when carers chose to prioritise the needs of the person they care for when accessing the personal and carer's leave entitlement. Carers NSW continued that this could, in some cases, 'result in deterioration of their condition that limits their ability to fulfil both their work and caring responsibilities'. In addition, Carers NSW submitted that:
While evidence shows that people living with disability are less likely to take sick leave than other people in the workforce, carers living with disability may have a greater need to access their paid sick and carer leave to manage their own health and wellbeing, especially to participate in health maintenance activities such as attending appointments, reducing their access to carer leave.
Income support payments
7.59
Government income supports become vital to financially supporting informal carers who cannot enter paid employment, or do not have an adequate access to the hours they may want to work.
7.60
However, evidence to the committee argued that these payments, including the JobSeeker Payment and the Parenting Payment are inadequate and do not serve their purpose, and also have disproportionate impacts on women.
7.61
For example, Ms Rebecca Glenn, Founder and Chief Executive Officer of the Centre for Women's Economic Safety argued that there were 'punitive settings in our welfare system', including the cessation of the Parenting Payment. Ms Glenn provided examples, including:
… forcing single parents off the parenting payment single and onto JobSeeker when the youngest child turns eight, compulsory enrolment in ParentsNext and a system of child support that penalises women for not knowing their ex-partner's income and interacts with the family tax benefit in a complex and unhelpful way. What I ask you to also consider are the further complications for women experiencing economic abuse—an estimated 380,000 women in any given year.
7.62
Ms Glenn continued that the inadequacies in support payments were having adverse impacts on women's health and wellbeing:
We know, from the moment the payment goes from being the parenting payment single down to JobSeeker and they lose a significant amount of income, the stress they report at that point in time and the sense of injustice that that work is not considered valuable anymore. Even when they want to work, they are not able to find work that's sufficiently flexible for their family's situation. So really the constraints are that women end up between a rock and a hard place and don't feel heard, understood or supported.
7.63
Similarly, Ms Helen Dalley-Fisher with the Equality Rights Alliance said the organisation had 'very deep concerns' about the combined 'failure to raise the rate of JobSeeker and the continued failure to pay paid parental leave to people after their youngest child turns eight'. Ms Dalley-Fisher explained that these circumstances create a 'serious barrier' to:
… get women into a position where they can get their ducks in a line and get themselves into the workforce in a way that's actually sustainable in the long term. We do see lots of single parents who play the juggling game, so they lose the parenting payment. They are, from that point, forced into the workforce regardless of the needs of the children involved and find themselves in the sort of work which is a scramble just to keep going, rather than in the sort of work that might build slowly into a more productive career or a longer term workforce engagement. So we see people taking jobs where flexibility and the ability to care for children is valued over the potential for a career path, or even valued, in some cases, over the amount of wages involved.
The rate of JobSeeker
7.64
The Parliamentary Budget Office (PBO), in a 2020 analysis of JobSeeker, found that these and other changes to the eligibility criteria for a variety of support payments (such as the Disability Support Pension and parenting payments) have had the effect of:
… diverting some prospective or existing recipients onto JobSeeker, some of whom are likely to experience higher barriers to employment. This means that improvements in economic conditions may have less effect on the employment outcomes of these recipients.
7.65
The PBO found a substantial change in the demographics of JobSeeker recipients over time. Between 2007 and 2019, an increasing number of older women were accessing JobSeeker, along with an increasing number of primary carers with dependent children—with an increase in this group from seven to 27 per cent between these years.
7.66
In support of the findings of the PBO, evidence to the committee noted that the demographics of those accessing JobSeeker are changing, and that the payment rate is not enough to keep people above the poverty line.
7.67
For example, the Roundtable suggested that JobSeeker was being accessed by women carers and was:
… providing critical income support for women with care responsibilities with a growing proportion of recipients being sole parents and older women not yet eligible for the age pension or for disability pension and who may be doing informal care work.
7.68
The Roundtable called for a permanent increase to JobSeeker and similar support payments, to ensure that they respect dignity and autonomy and provide adequate support.
7.69
Other submitters also called for a permanent increase to JobSeeker, including the Salvation Army, which pointed to Australian Bureau of Statistics data showing sole parents were less likely to be employed than parents in couple families, and therefore, a 'higher proportion of sole parent families rely on social security payments'. The Salvation Army suggested that 'the scarcity of family-friendly employment and childcare mean that single parent families are forced to live on the much lower Jobseeker Payment through no fault of their own', an issue exacerbated by the fact that the single Parenting Payment ceases when a child turns eight.
7.70
The Salvation Army called for an increase to JobSeeker of at least $130 per fortnight, to 'allow people to live with dignity' and in recognition of the difficulty of finding family-friendly employment. An increase would also better support single parent families:
By supporting sole parents to meet their family's needs and break the cycle of poverty, we are providing the foundations the next generation of women need to thrive. This could include providing financial support to allow parents, especially single parents, to be at home with their children, or providing access to affordable childcare to allow them to take up paid work.
7.71
Chief Executive Women suggested that JobSeeker be permanently increased, with rates that are consistent with indexation. Chief Executive Women argued that doing so would help support women into work, therefore improving their economic opportunities and economic equality across Australia.
Activity tests for support payments
7.72
Access to several support Government payments is contingent on recipients meeting the requirements of various activity tests. Evidence to the committee suggested that these tests were producing adverse outcomes and working against informal carers seeking to start or increase their engagement with paid employment.
7.73
Anglicare Australia noted that social security payments like JobSeeker and the Parenting Payment, which reverts to JobSeeker once a recipient's youngest child turns eight, are set 'well below the poverty line', forcing many people with caring responsibilities into poverty. Anglicare voiced concerns that the activity tests are exacerbating inequalities for recipients:
They are subject to stringent activity tests and obligations that do not recognise the realities of their family circumstances. The employment programs that are meant to help them at best require them to engage in meaningless, busy work, and at worst actively cause harm.
7.74
Associate Professor Elise Klein suggested there could be another way to approach income security payments. Associate Professor Klein noted the positive consequences during COVID‑19 when welfare conditionality was suspended, and a $550 Coronavirus supplement provided. Professor Klein pointed to her research showing that:
These temporary measures of 2020 provided a 'natural experiment' of a more generous and supportive welfare system as the government gave people often deemed as needing to be compelled into the labour market through welfare conditionality, adequate financial security and no welfare conditionalities. The study's findings suggest an alternative approach to welfare conditionality, and one where unpaid carers, largely women, were better able to thrive.
7.75
Associate Professor Klein recommended the abolishment of 'all welfare conditionality programs, including mutual obligations and compulsory income management', and called for JobSeeker to be increased to an adequate amount—and at least to amount available at the time of the coronavirus supplement.
7.76
Anglicare was of a similar view and made the compelling point that the increase of support payments at the height of the pandemic 'confirmed what many have always known—poverty is not inevitable'. Anglicare said that:
The simple act of providing a liveable income to so many people, including those who were out of work or employed casually, all but eradicated the problem of poverty in Australia.
Childcare subsidy
7.77
The committee is pleased to see the increases to the Child Care Subsidy (CCS) rates, as well as the recent changes introduced by the Cheaper Child Care Bill which increase the base level of subsidised hours of childcare to 36 hours per fortnight for First Nations children, regardless of activity levels. This amendment reflects the position put forward by the committee in Recommendation 8 of its Interim Report.
7.78
Despite these positive developments, the committee continued to receive evidence about the negative impacts of the CCS activity test. Submitters and witnesses argued that the test had onerous compliance requirements and actively dissuaded carers from engaging with paid employment, particularly in disadvantaged families.
7.79
The Hon Jay Weatherill AO of Thrive by Five noted the seemingly contradictory purpose of activity tests, observing that they seem 'predicated on the basis that a family is not going to work unless it's provided with this incentive to actually engage in work through the potential withdrawal of the childcare benefit'. He continued that:
There seems to be this mindset that somebody shouldn't get a benefit from government unless they do something in return—it's like a quid pro quo type of thing—and that there's something illegitimate about a parent getting something. There's some really unusual public discourse around this … Most of the drivers of taking up work are actually money. People actually need the money, and so they work where they possibly can. It also misunderstands the point that there is this public good. So I'd clear away all the boundary conditions, and then your compliance burden would disappear overnight.
7.80
Mr Weatherill summarised the issue with activity tests, by asking why:
Would we stop somebody from going to school because the parents weren't putting in sufficient effort to find a job?
7.81
G8 Education called for a change to all eligibility requirements around the CCS 'so that all parents are able to access subsidised hours, regardless of circumstances'.
Activity tests and First Nations communities
7.82
The Secretariat of National Aboriginal and Islander Child Care (SNAICC) was of the view that removing, or at least making some changes to the activity test, could have some immediate, positive impacts for First Nations communities, particularly in terms of balancing care and work responsibilities. The Director of SNAICC, Mr John Burton, told the committee that:
We're certainly very pleased about the election commitment and the proposed legislative reforms that will aim to see the childcare subsidy increase to 90 per cent for families who are earning under $80,000 per year. We are, though, concerned that that change will miss the potential impact for some of the most vulnerable families because of the application of the activity test. The minimum 24 hours of subsidised care per fortnight that the activity test allows for is really just not enough in terms of what children need for their healthy development and what parents need in order to seek work, develop skills and entre and progress in the workforce.
7.83
The committee was told about a recent Impact Economics report which, it was argued, confirmed what stakeholders had been telling SNAICC since the activity test was introduced. The report found that:
as a result of the activity test, Aboriginal and Torres Strait Islanders are over five times more likely to be limited to the one day of subsidised care;
low income families – earning between $50 000–$100 000 are more than six times more likely to be limited to the one day of subsidised care;
not only are children from families of lower socioeconomic backgrounds receiving less care, there are also a very high percentage who are receiving no care at all; and
many parents who don't meet the minimum threshold, chose not to engage with the system entirely.
7.84
SNAICC noted that families had expressed concerns about reporting their 'childcare activity'—specifically, that if they were unable to record it accurately, it would lead to the accrual of debt. It was suggested that this is a further reason that First Nations families are disengaging with the formal childcare system.
7.85
Mr Burton told the committee that First Nations communities immediately saw benefits with the cessation of activity tests at the height of the pandemic:
We saw very quickly that there was an increase in engagement of Aboriginal and Torres Strait Islander families in childcare once that barrier was out of the way. There is some data on that. There was a 12 per cent increase in the nine months to June 2021. We heard about that very quickly. It was a lot of the Aboriginal controlled organisations that are providing those early childhood services that took the initiative when that barrier was removed and were reaching out to families and getting them engaged in childcare, and we saw a lot of progress. We alerted the government of that progress very early on and have called consistently since that time for those gains to be capitalised on in terms of removing those barriers long term.
The tax and transfer system
7.86
The Family Tax Benefit (FTB) is a two-part fortnightly payment, aimed at assisting with child-raising costs, and based on adjusted taxable income. To be eligible, applicants must:
have a dependent child or full-time secondary student aged 16 to 19 years who does not get a pension, payment or benefit;
care for the child for at least 35 per cent of the time; and
7.87
FTB Part A is paid per child, depending on family circumstances, and FTB Part B is paid per family, depending on a variety of family circumstances (for example, it aims to assist single parents and some couple families with one main income). The FTB can be paid either fortnightly, or as a lump sum at the end of the financial year.
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For FTB Part A, the maximum rate may be available if the family's adjusted taxable income is below $58 108. The rate reduces by 20 cents for each dollar of income over that amount, but below $103 386. For income over $103 386, the rate is reduced by 30 cents per dollar, until the payment is nil.
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FTB Part B is paid per family and depends on the age of the youngest child, and income—the payment is not available in single parent families with an income over $104 432, nor can FTB Part B be paid if receiving PPL payments. A secondary earner can earn up to $6059 each year, before it affects FTB Part B.
High effective marginal tax rates and high average tax rates
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As noted in its Interim Report, the committee received evidence of structural features in Australia's tax and transfer system that can discourage parents from working additional hours.
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The combination of progressive income tax rates, reduced family support payments at higher income levels, and childcare costs can result in very high effective marginal tax rates (EMTRs) for working parents.
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This outcome is 'particularly punishing' for women who provide most of the unpaid care to children and disproportionately work part-time.
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The Roundtable, for example, noted that the design of Australia's tax and transfer system has a 'strong gendered impact on families, directly shaping household decision-making about who works and who cares'. The Roundtable continued that:
Financial incentives baked into the system of tax and transfers … embed the one (male)-and-a-half (female) household earner model so dominant in Australia. This has significant consequences for women's economic security over the life course, including their reliance on social security payments, and income support in older age.
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A similar point was made by the Australian Human Rights Commission (AHRC) in its 2013 report into valuing unpaid care. The AHRC commented that superannuation savings are supported by 'generous taxation concessions'. The AHRC also noted the gendered nature of tax concessions, saying:
The current system of taxation concessions disproportionately benefits higher income earners who make higher contributions to their superannuation. As carers are more likely to have lower superannuation savings, they are less likely to benefit from taxation concessions.
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The Productivity Commission was very clear that the tax and transfer system affects how people can combine work and care responsibilities, 'as it creates a disincentive for some parents to enter the workforce or to increase their hours of work'.
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The Grattan Institute called this the 'workforce disincentive rate'—being the combination of tax, welfare settings and childcare costs. The Institute noted that the workforce disincentive rate could be 'particularly punishing for the fourth and fifth day of work for a primary carer, still generally a woman', and concluded that 'working an additional day for no or virtually no take-home pay is understandably not a choice many find attractive'.
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Further to this, the committee heard that for a female who is the primary caregiver to a child, working a fourth or fifth day in a week can result in between 80 to 100 per cent of the income earned being offset by increased tax, and decreased rates of the CCS, and FTB payments (Parts A and B).
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This situation particularly affects dual-parented households where a female primary carer is typically paid less than their partner and is a so-called 'second earner'. Also affected are sole-parented households, the majority of which are headed by a female primary carer who is also the primary earner.
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Professor Miranda Stewart, Member of the Roundtable, provided compelling evidence on the impact that personal income tax rates, combined with the taper rates of the CCS and FTB payments, has for household income levels. Professor Stewart explained:
… there are a couple of features of the design of that childcare subsidy which contribute to the effective tax on work. The first is that it is income‑tested on joint income, so the income of both the primary earner and what we would call the second earner—the second earner being the person joining the workforce, often with a lower wage and usually female. It tapers, and it tapers not on individual income but on joint income. That child care subsidy taper sits on top of the personal income tax rate structure and adds an effective tax rate.
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In relation to FTB Parts A and B, Professor Stewart expanded on the issue of adverse consequences from the withdrawal of the benefit over a certain threshold:
The payments are per child, so the effect differs depending on the number of children in the household. Because both of those payments for couple households are tested on joint income—again, we have a quasi joint or family unit in the transfer system—that has the effect of the second earner's income being kind of on top of the first earner's income, and it faces, therefore, the higher rate. The second earner is the more responsive, or we would say 'has more elastic labour supply' … and also, at the same time, faces that higher effective tax rate from the withdrawal of benefits.
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Professor Stewart illustrated these impacts for a family on a 'relatively low income' with a male primary income earner being paid $78 000 per annum, and a female secondary income earner seeking to work full-time with two children under five. In that example, Australia's tax and transfer settings, as of May 2022, would result in the female incurring a very high EMTR of 55 per cent when working two days, 50 per cent when working three days, slightly over 50 per cent when working four days and 70 per cent if working five days.
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Professor Stewart continued that while EMTRs may be 'very high at a specific level of earned income, the disposable income of the individual or family may be steady or still rising.' However, where the disposable income of a family or individual is 'flat or grows very little overall, this indicates a high average effective tax rate'. In this circumstance:
… there is essentially little net benefit in working, compared to remaining at home in a dependent carer role where the family relies on the breadwinner earnings and family payments. This average tax rate is also relevant to understanding work disincentives for secondary earners.
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Emeritus Professor Bettina Cass AO of the Roundtable reiterated the point that the FTB constitutes a 'high proportion of the incomes of low-income families', and they should not be considered just as 'add-ons', especially to JobSeeker. Emeritus Professor Cass continued that the payments are:
… absolutely critical in some instances, particularly for sole-parent families and low-income couple families. Therefore there can be a trade-off, a real dilemma, between ensuring the adequacy of those payments and the relationship between the cut-off points and the tapers. I think that, if the issue for government is ensuring the wellbeing of low-income families, their employment potential, their care potential and the welfare and wellbeing of their children, then I'd be putting my emphasis … on adequacy, because it's just so crucial. Very often family payments A and B are crucial add-ons to JobSeeker, particularly for sole parents whose youngest child is over eight, but also for low‑income couples whose youngest child is younger than eight. Therefore we should be ensuring that that balance works.
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The Productivity Commission explained that addressing this issue was complex, noting that 'there is no simple solution to high EMTRs'. The Commission explained that:
In general, they exist because of desirable design elements of the tax and transfer system — a progressive income tax scale and means-tested benefits that phase out gradually as incomes rise. Careful design can address the highest EMTRs in the system, but generally by smoothing peak EMTRs, which can have the effect of raising EMTRs at another point in the income scale. Moreover, EMTRs are but one consideration in the design of benefit payments — affordability and targeting also have to be weighed up as part of any policy options.
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However, Professor Stewart put forward several policy measures aimed at lessening the work disincentives for second income earners, which arise from high EMTRs and average tax rates. These included:
expanding the CCS and establishing a universal and affordable, or near-free, public ECEC system;
establishing a universal and taxable per-child payment that would 'recognise the costs of care and alleviate the high EMTRs' experienced by secondary earners;
establishing 'a universal family or child tax benefit into the income tax net for the second earner'; and
'taper or income test the family or child payment on secondary earner's income' to 'smooth and reduce EMTRs'.
Superannuation
Women, retirement and poverty
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This report has laid bare the adverse impacts that unpaid superannuation during parental leave has on working carers and in particular women. The committee was also told of the negative impact of extended unpaid leave and reduced hours as well as the gender pay gap on women's superannuation balances, leaving them at risk of poverty as they age.
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Evidence to the committee indicated that most unpaid carers of an elderly person are women in mid-life caring for parents. These carers are likely to reduce their working hours, with adverse consequences on their earnings and their superannuation. It is women without children who are often expected to take on this caring role and their lower workforce participation will impact their economic security in retirement.
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Modelling on the economic impacts on lifetime income and retirement savings of unpaid carers commissioned by Carers Australia revealed that:
On average, Australian carers will lose $392,500 in lifetime earnings to age 67; and $175,000 in superannuation at age 67. People who are carers for extensive periods of time will lose substantially more than 12 months on unpaid leave, with the most affected 10% losing at least $940,000 in lifetime income, and $444,500 in retirement savings.
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Women are more likely to take the primary responsibility for unpaid care, work part-time or in casual positions for lower income. A fragmented work history and lower paid work across a lifetime means that women are likely to accumulate less superannuation than men. According to the Office for Women, women in Australia today are retiring with 23 per cent less superannuation than men.
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However, other evidence to the committee suggested that the gender superannuation gap may be greater. The Workplace Gender Equality Agency (WGEA) noted in this regard that the average superannuation at retirement was $292 510 for men and $138 154 for women, resulting in a gender retirement superannuation gap of 52.8 per cent. Furthermore, during the pandemic, the gendered pattern of disruption to work and care coupled with the COVID-19 Early Release Scheme has widened the gender gap in superannuation savings.
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As women are more likely to take longer parental leave, the superannuation gender gap widens as Australian employers and the Australian Government do not have to pay superannuation for workers on parental leave. Furthermore, women generally live longer than men. At the age of 65, the average Australian male is expected to live a further 19 years, with women a further 22 years. The combined effect of these factors leaves women with insufficient savings to support them in retirement and more likely to experience poverty in retirement than men.
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In 2012, 38.7 per cent of elderly single women were living in poverty compared to 33.8 per cent of elderly single men. According to the WGEA, even though the poverty rate amongst pensioners started to decline since the aged pension was increased in 2009, 'being single still increases the risk of poverty and it is more common for women than men to live alone'.
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These factors leave women more reliant on the aged pension than men as their primary source of income. Women comprise nearly 56 per cent of people 65 years and older receiving the age pension which is a consequence of the difference in retirement superannuation savings.
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Industry Super Australia has found that if a mother of two received superannuation on Commonwealth Paid Parental Leave, she would be $14 000 better off at retirement. While significant, superannuation on PPL alone is not adequate to ensuring equality in superannuation.
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Women are more likely than men to re-enter the workforce after retirement out of financial need. They are also twice as likely as men to sell their house and move to lower cost accommodation because of their financial state in retirement.
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The committee was told that superannuation is not working as it should for working carers because of the stop-start nature of their working lives and generally lower pay. The WGEA noted that the superannuation system and its 'in-built biases' impact women's economic security at retirement, arguing that:
The system is tied to paid work and assumes a continuous work history to accumulate sufficient funds to live comfortably in retirement. This is more often the experience for men rather than for women. Evidence confirms that women are more likely to take primary responsibility for unpaid care work and are more likely to return to work part time and in lower paying roles. This means that that the annual superannuation contributions are significantly less when compared to continuous full-time employment.
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Australia's superannuation system is highly biased in favour of full‑time workers whose participation in the workforce is uninterrupted and this has a gender impact. As the system is tied to paid work, it creates significant inequalities in retirement outcomes for those who undertake unpaid care, who are predominantly women. In terms of superannuation savings, the system penalises women for:
having time off work to care for children, elderly parents or others with non-retiree women (who have or have had children) having 16.3 per cent lower superannuation savings on average than their counterparts who have not had children; and
working part-time with non-retired women who work or have worked part‑time having on average 20.6 per cent lower superannuation savings than counterparts who have not worked part-time.
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The point was also made to the committee that women miss out on the gains arising from compound interest on the superannuation contributions that they miss. Evidence to the committee indicated that with improved parenting and workforce participation policy settings, Australian women could earn an additional $696 000 over their working life and retire with an additional $180 000 in superannuation.
Carer credits
7.119
Noting the evidence associated with the superannuation system in Australia, the committee was interested to learn that several countries have considered ways to address the income inequalities arising in retirement incomes.
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In 2013, the AHRC released its report Investing in care: Recognising and valuing those who care, which examined models and mechanisms used across 24 countries to value unpaid care. That research informed a number of potential reform options put forward by the AHRC, aimed at 'recognising and valuing unpaid caring work'.
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One proposal put forward by the AHRC to address inadequate retirement incomes for informal carers was the introduction of 'carer credits', in recognition that superannuation 'consolidated a direct link in Australia's retirement income system between income in old age and participation in paid work throughout the lifecourse'.
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Noting the impact of unpaid care and time out of paid employment creates significant inequalities in retirement income between carers and non-carers, the AHRC suggested that:
The introduction of carer credits into a country's pension system provides a method of explicitly recognising these years spent providing unpaid care for a child or a family member with a disability, long-term illness or frailty due to old age.
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The AHRC explained how such a system would work. In many countries, carer credits for parents are linked to periods of paid or unpaid parental leave. Credits are also made available to new parents not in paid employment, or not entitled to parental leave. The AHRC further explained that:
Some carer credit schemes permit, and indeed encourage, carers to return on a part-time basis by continuing to provide carer credits upon their return or re-entry to the workforce. These credits can 'top up' an individual's pension contributions to the value of what they would be if the individual was working full-time.
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The AHRC noted that as of 2013, some countries were extending carer credits to all carers—not just parents. The carer credit entitlement 'generally depends on the level of the care need or the amount of care provided by the carer, sometimes verified by a "care certificate"'. The AHRC warned, however, that changes to the superannuation system take time to mature, and the introduction of carer credits should therefore 'include both the age pension and the superannuation system', so that those approaching pension age now can benefit.
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The AHRC concluded that the 'benefit to society is greater gender equality in older age and greater adequacy of women's retirement'.
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The committee received some evidence supporting the implementation of carer credits. Chief Executive Women, for example, was in favour of extending superannuation guarantee payments to time spent out of the workforce to provide informal care, but also pointed to the carer credits model 'to ensure carers are not disadvantaged and left financially insecure in retirement'. Chief Executive Women noted that this approach had been adopted in a variety of ways in 'many OECD nations'.
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Similarly, Carers NSW advocated for carer credits stating that 'ensuring adequate financial support for carers throughout and after their working life is a vital element of supporting carers to balance work and care'.
Issues with implementing carer credits
7.128
The Treasury, in its 2020 review of Retirement Income Final Report, noted that countries including the United Kingdom, Sweden, Finland and Germany recognised unpaid care in their pension systems, through carer credit systems.
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However, Treasury observed that a similar approach might not be possible here, because retirement systems operating overseas were different to those in Australia. By way of example, Treasury explained that 'many public pension rates in schemes overseas depend on a person's time in the workforce, and carer credits are used in these calculations'. It noted that:
As the Age Pension is non-contributory and does not depend on workforce participation, a carer credit system would need to be adapted to work in the Australian context. A carer credit paid through superannuation would likely interact with the Age Pension, and its effect would be moderated by the means test.
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As part of its Review, Treasury also recognised that there was a gender gap in superannuation balances at retirement. But, Treasury's analysis concluded that 'the average annual retirement income pay gap for all workers reduces to 9.6 per cent because the Age Pension plays a larger role in the retirement of those with lower working-life incomes, such as part-time and casual workers'.
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Treasury also suggested that due to the targeting effect of the Age Pension, the gap between men and women's income narrows, and this 'is the case even when women take career breaks or work part-time'.