A woman with children in childcare will face an effective marginal tax rate of 59.4 per cent under Labor in 2024, compared to 56 per cent under the Coalition. The average man faces a 33.2 per cent tax rate under Labor and 28.8 per cent under the Coalition.
Labor has offered some compensation for this gap by offering 15 hours of pre-school access to three- and four-year-olds, at a cost of $1.7 billion, but this still leaves parents of an estimated 300,000 two-year-olds facing effective marginal tax rates of up to 90 per cent. Nor is this offering accessed by those who send their children to day care in the years prior to school.
Labor has not ruled out offering further tax cuts if elected but will not guarantee any more before the election on May 18. KPMG estimates that gross domestic product would be $60 billion greater and living standards raised by $140 billion in 20 years' time if the disincentives and caps on childcare subsidies were removed.
The Grattan Institute's chief executive John Daley said solving the issue should be a top priority for a future government. "If you are actually looking for an economic payback this is where you will get one," he said.
He said the highest effective marginal tax rates in Australia are faced not by high-income earners, but by middle-income earners, particularly women with children.
Australian Bureau of Statistics figures show before having children women are just as likely to work as men but many drop out of the workforce to look after children. Some never go back.
"The childcare changes are real deterrents to work," said Mr Daley. "Every single time I talk about it a woman says that it is not worth my while working four days a week."
Sydney mother Sophie MacKay, who has a nine-month-old son, works three days a week and estimates increasing that to five days would actually see her position go backwards by $100 a fortnight.
"And this is just with one child and I have a lot of friends with two kids and there's just no way they can go back to work before the kids are at school," she said.
"We definitely need to be making childcare a lot more affordable for women who want to be at work. For me personally, and for most women I know, we have to be at work full-time to get the better job and the better salary to be able to ultimately have a better life to our children. That's one thing I'm really worried about for people on averages incomes - we have to put on pause our earning potential until our kids are at school."
Melbourne mother Valerie Jackson has two daughters, aged 2 and 3, and pays $750 a week in childcare fees - almost her net weekly wage.
"If I didn't have a business, if I wasn't concerned about my future ... contributing to my super and having my own financial autonomy, it's not financially viable for me to work," Ms Jackson said.
She regularly thinks about getting a lower paid job to be eligible for higher rebates. And if the system was geared differently, she would go back to work full-time.
"You try to stay relevant in the workforce, but you've got no incentive. [The system says] it's great you're successful ... but I'm losing half my salary as tax and the other half on childcare costs."
With Nick Bonyhady and Sumeyya Ilanbey
- SMH/The Age