Cost of childcare deters people from returning to work, Working for Families review finds

Working for families is set to change, the government has been told, but exactly how remains up for debate.

He is reviewing the program and conducted a public engagement earlier in the year.

In a tax policy report to the ministers of Inland Revenue and the Department of Social Development, they said they had received consistent feedback on the scheme, and some where opinion was more divided.

The authors were clear that many families had insufficient incomes and were struggling, especially with recent increases in the cost of living and housing issues.

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The authors agreed that indexing payments was important to keep support at adequate levels over time, and that current levels of reduction – that rate at which Working for Families is clawed back when households earn more than $42,700 – are too high and discourage working or increasing hours.

They said it was important to support people with the cost of work, especially when it came to covering childcare and transport costs, and that debt could be a significant issue – in especially when people were worried about being overpaid and having to pay it back.

The authors said the system as it stood was too complex and not designed for the various types of families or people whose incomes and circumstances might change.

About half of those who expressed their opinion said that reducing child poverty and improving incomes should be the sole objective of the programme. But others said the program should retain its incentives to encourage people to work.

About half of those consulted said the employment tax credit, of $72.50 per week for up to three children when individuals are in paid employment, should be paid to all families, whether working or not. But some said it would reduce the incentive to give up the benefit.

About 30% of respondents said the payout rate should increase.

The report notes that the cost of childcare could be enough to deter people from returning to work.

“It was noted that the cost of childcare was now very expensive and it was ‘very demeaning’ if a parent’s income from work was less than what they were paying for childcare. One respondent said childcare costs were higher for single parent families because there were no other adults in the family available to care for the children while the single parent was at work” , says the report.

He said people returning to work would not only lose income from Working for Families, but would also have to pay childcare costs.

“Therefore, the total cost of a parent returning to work will be the reduction in WFF payments plus the cost of childcare. That could easily be enough to deter many parents from returning to the workforce.

Some said there was also an opportunity cost to working. Working parents might not be able to manage their children’s return to and from school and would have less time to find affordable food.

They said it made some parents feel like the work wasn’t worth it and some only returned to work if they were promoted or offered flexible working hours.

The report says some authors said discounted public transport might help, but that was not available in all areas.

People who had varying incomes or working hours found it difficult to work for families, the report noted.

“Many people were concerned that the current system would not work well for people with varying incomes/schedules. The rise of precarious part-time, shift and casual work, as well as the booming gig economy, have contributed to WFF’s struggles,” the report said.

“Stakeholders said reporting income changes was difficult and that the pandemic had exacerbated existing problems. People said that families with varying incomes often struggled with budgeting and didn’t know what their income would be during a given period. Additionally, families struggled to determine how changes in income might affect their entitlements, so they couldn’t necessarily make informed decisions about whether working more was worth it.

Some respondents were also concerned about how a change in relationship status could affect entitlements and potentially put them in debt if they were overpaid.

“They did not consider it appropriate for rights to be reduced simply because of a parent’s new relationship, as the new partner might not provide support to the parent or their child. One stakeholder did not like how a parent’s right could currently be reduced if they were “trapped” because they were in a relationship. They suggested adjusting rights only if a parent self-notifies the IR/MSD of a relationship. They also suggested updating the relationship definition.

Susan St John, spokeswoman for the Child Poverty Action Group, said there was no clear plan of action from here.

“The signs also don’t look promising for next year, with any reforms enacted likely conditional on Labor winning the election.”