If the Abbott government is serious about boosting women's participation in the workforce, it should forget about its proposed paid parental leave scheme and fix the tangled family payments system instead, a prominent free market think tank says.
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In a report released on Wednesday, the Centre for Independent Studies argues that the current $32 billion system of family payments can act as a disincentive for parents to work again after they start a family and needs urgent reform.
The report says the issue occurs when a parent starts to earn more money and the family faces both a withdrawal of their family tax benefit and an increase in income tax liability.
Report author Trisha Jha says that some families - and women in particular - are finding themselves in circumstances ''where it pays for them not to work at capacity''.
This is made worse by the high costs and lack of availability around childcare.
''Suddenly, you've got families who are in a situation where they are deciding whether to take on another shift, [asking themselves] 'exactly what am I getting for this extra labour?'''
The report finds that family tax benefits should be altered to have a simpler income test and be reformed ''with the punitive effects of high effective marginal tax rates in mind''.
Ms Jha says that ''instead of proposing expensive new schemes'' - such as Prime Minister Tony Abbott's $5.5 billion paid parental leave scheme - to facilitate women's workforce participation, the government should fix the family payments system.
She argues that the current system of family payments overlaps and is difficult for parents to understand and therefore make informed decisions about returning to work when they have young children.
Family Tax Benefit Part A is the ''bread and butter'' family benefit, paid to low and middle income families to assist with the cost of child raising - and yet it is also the most complex aspect of the family payments system.
Ms Jha explains that it uses two different income tests to determine eligibility and that the entitlement amount changes according to how many children there are in a family and how old they are. On top of this, there are also numerous supplements, such as the multiple birth allowance and large family supplement.
Ms Jha adds that many families receiving family Tax Benefit Part A are also eligible for Family Tax Benefit Part B (which is for families with one main earner).
The report comes after the Productivity Commission's draft report into childcare released last month also noted that the drop off in family tax benefits once a young family's income rises, plus increased income tax rates and reduced child care assistance ''can result in an effective marginal tax rate of close to 100 per cent''.
But it also noted that parents may continue working if they anticipated ''long term private benefits'' from staying connected to the workforce.
The Centre for Independent Studies report also comes as Fairfax Media revealed this week that Mr Abbott's parental leave scheme has been placed in the ''too hard basket'' and is unlikely to be put to Parliament this year.
