Striving for a fairer financial deal for working mothers

To quantify workforce disincentives, KPMG developed the concept of a Workforce Disincentive Rate (WDR), which reflects how much income from an additional day of working is lost in additional taxes, reduced benefits and childcare costs. The WDR is the percentage of income from taking on an extra day’s work that a person loses to income tax and Medicare levy, withdrawn family tax benefit and reduced child care subsidy.

In KPMG’s October 2018 report, The cost of coming back, we estimated that the Childcare Subsidy (CCS), introduced in 2018, created WDRs in the range of 75-120 percent. A WDR exceeding 100 percent indicates that the household loses money from the primary carer working an additional day. Few would regard this as a reasonable or fair outcome.

Welcome changes to the CCS over the past three years have helped alleviate the worst of the WDRs. However, the 2024 report finds that it remains the case that the WDRs, which remain as high as 75 percent, continue to act as a deterrent to working additional hours.

KPMG has also estimated WDRs under the Productivity Commission's recommended reforms. KPMG has found that, while the proposals would result in some improvement, WDRs of up to 67 percent remain.

The report found that one of the key contributors to high WDRs for lower income households was the loss of the Family Tax Benefit (Part A) Supplement, applicable to families earning less than $80,000 per year. The report recommends the government investigate tapering the loss of the benefit as additional income is earned by working additional hours so that these families do not face a 'cliff' from losing the supplement.

This report considers the status of KPMG recommendations from previous reports, including measures which have already been adopted by the federal government, and areas for future reform. One of the proposals for future reform is to cap WDRs to an individual's marginal rate plus 20 percent.