With the recent release of the Intergenerational Report, questions over how a dropping fertility rate will effect an ageing population have come to the fore. In today’s analysis, Miranda Stewart (@AusTaxProf) of University of Melbourne (@MelbLawSchool) and ANU (@ANUCrawford), explains how the lack of an economic accounting of care work, particularly for children, is creating myopia in government planning systems, and could be remedied if care work was properly valued as a national asset. This analysis is a summary of a policy brief put out by the Melbourne School of Government entitled Tax & the Fertility Freefall: Children, Care & the Intergenerational Report.

The Intergenerational Report is blind to unpaid care

The 2021 Intergenerational Report (IGR) looks forward 40 years to project future trends in Australian economic and fiscal sustainability. The IGR is released every five years as required by the Charter of Budget Honesty. Its long-range vision contrasts with our annual government budget framework and the medium-term expenditure framework that the budget usually applies. As the IGR itself says, the future will certainly not look like its projections – forecasting is subject to massive uncertainty, and based on assumptions that may not come true. But, we can be certain of some things. In particular, by ignoring why women are having fewer babies and failing to count the cost of care, the IGR only tells us half the story about future economic and fiscal risks.

In measuring economic growth, the IGR is blind to goods and services delivered within families, or households. It only measures what is monetized through the market. In accounting for fiscal distribution and costs, the IGR only measures public revenues, investments, and spending, but ignores unpaid investments of resources, particular of time, by households and volunteers.

Australia’s falling birthrate will have profound consequences on the future. Why isn’t the government doing more to value parenting? Photo by Michał Parzuchowski on Unsplash

The IGR observes the “traces” that public statistics capture about taxing and spending to ascertain our “socialised” or public resource allocation. It does not see the much less visible family, household or “non-socialised” investments by families or households. It is missing a crucial element: the economic and fiscal value of non-market care of children. Children are priceless, of course, to their parents – but children are also socially valuable. This should be obvious, but it is surprisingly controversial. People both with and without children depend on the future contributions made by today’s children in taxes and time, to support us in old age.

Most of the non-market investments of families reflect time expended on care of children, the elderly, and others who need it. These investments by families leave no “traces” in public statistics, because decisionmakers on statistics choose not to look there. One exception is the time-use survey of the Australian Bureau of Statistics. Our data is way out of date: Australia last reported on time-use in 2006. The good news is that the ABS has re-started the time-use survey.

Why is this important? Two reasons: shared wellbeing; and distributive justice. To enhance overall economic welfare, as we should, we must consider resources both public and private, both money and time. Likewise for the fundamental goal of justice for all Australians, we must ensure minimum standards and more equal distribution of resources and wellbeing, across all stages of life. The IGR’s failure to take account of family and household resources means it ignores growing inequality between households, and does not address inequality between generations and the fiscal risks that we face in future.

Falling birthrates have serious economic consequences

A key focus of the IGR is on the impact of demographic changes. This is affected by assumptions about fertility and migration. The 2021 IGR makes a dramatically lower assumption of the long-run fertility rate, below 1.6, than the 2015 IGR which assumed a fertility rate of 1.9. The fertility rate of 1.6 is significantly below the population “replacement” rate of 2.1, but it is realistic and in line with global trends. These changes impact the total dependency ratio. This is the ratio of the working age population to those who are young, or old, and who are reliant on working-age people for care. Figure 1 (below) shows that since the 1920s, the ratio of working aged to those over 65 has been declining (this is mainly a consequence of increased longevity), but the youth dependency ratio (working age to under 15) has been rising, as the number of children we have declines. The total dependency ratio has been, consequently, almost flat through the century.

It is only very recently that the total dependency ratio has started to decline slightly: here, our declining fertility is crucial. We are a nation having fewer children, but living longer and needing care in old age. The implications of having fewer children are only now becoming apparent. The IGR discusses in detail that net inward migration slows population ageing, helps economic growth and assists the fiscal sustainability of Australia. But migration does not substitute for fertility or halt population ageing; it only delays it.

Accounting for – and valuing – care work

After the immense loss of life during the First World War and the Spanish flu pandemic that followed it, Australia’s national accountants understood the value of the nation’s children, the national statistician estimating in 1923 that the value of the stock of human capital in Australia was about three times the value of the nation’s ‘material capital, both private and public’ at the time. Most importantly, such calculations included the unpaid work of mothers in raising children to age 15. We use the term “unpaid” work because the carer does not receive a salary, so the value of care is not monetised and is therefore missing from the statistics.

The IGR counts the monetised contribution from population growth: wages, superannuation, and taxes which fund aged care and pensions. The cost of investing in, and raising, children, is mostly borne by parents who invest extraordinary amounts of time and resources over many years. This is not just to age 15, which is “working age” according to the ABS dependency ratio statistics – but for many young people, well into their twenties.

Most investments of time in children are by women. There is ample evidence of overworked parents, mostly women, working a double shift. Many women in families – and some men – are also caring for the elderly or disabled. Women bear the economic cost of care, but they are not remunerated for it. To fit in care work, women take jobs which mean that they do not fully benefit from the economic independence, reward, or security that would come with having a fulltime well paid job over their lifecourse. Relying on private superannuation as retirement income ensures that the gender gap in monetary returns from investing in children is entrenched, and the returns from their investments in children are mostly socialized.

The last ABS time-use survey in 2006 showed that women spent much more time on care than men. The ABS is rolling out this survey again in 2021-2022 and it will tell us how much time we are spending on care, albeit in pandemic conditions.

Current tax and transfer policy settings fail to share the cost of care, or to alleviate the economic burden on women. Indeed, they prevent low and middle income families from getting ahead, by pushing most of the care responsibility for children onto them. It is hardly surprising that fertility rates are declining. The opportunity cost for families – but especially for women – of having children, in both money and time, is enormous, especially during infancy. In financial terms alone, raising a family of two children costs around a million dollars, even without counting the unpaid labour.

Fixing the problem only lacks political will

The IGR is to be commended for identifying the economic, social and fiscal value of increased workforce “participation” by women – who would increase their own economic independence and security, and pay more taxes, if current policy barriers to market work were removed. Clearly, increased women’s market work participation would be positive if they had no other work to do. To its credit the IGR also notices that the main reason why women are employed part time is care responsibilities, shown in Figure 2 (below). But the IGR fails to note that in families with young children, almost no men work part time, while most women do; nor does it analyse the lifecourse implications of this difference for women.

In contrast to its detailed discussion of migration, the IGR still fails to grasp the central issue: The urgent need to share the cost of investment and care of our most valuable assets - our children – more fairly across society.

We can easily improve policies to reduce the burden on families, and especially women, and share the cost of investment in our children. One way to do it is obvious – and already widely discussed – universal free childcare. Paid parental leave is also crucial. We should invest in financial support for parental care time (‘leave’ is a misnomer) for all children with options suited to both parents, for at least the first 12 months after birth and probably longer. And we should reinstate universal family allowances to support families, especially those who need it most and don’t have good work options, to care for their children without living in poverty. Universal child endowment was adopted until the 1980s in Australia.

We should also be clear that these policies are not expensive – they are good value. The view that public investment in child care and parental leave would cost too much, or be fiscally unsustainable, is not only misguided, it is akin to blind drunk – it only looks under the streetlight because that’s all they can see. The IGR can contribute by counting not only public fiscal resources, but also private time and monetary contributions. This would make visible the barriers that limit the contributions of skills and labour, and the unequal distribution of market rewards, for Australian women, and parents more generally.

If the IGR – and we as a society – properly examined public and private resources and investment, we could take some simple steps to save on cost, improve justice and reduce inequality of resources for all children; between women and men; between rich and poor families; and across generations.

This post is part of the Women's Policy Action Tank initiative to analyse government policy using a gendered lens. View our other policy analysis pieces here.

Posted by @SusanMaury

Accounting for care: The Intergenerational Report fails to value parenting