Games

Increasing childcare affordability would boost economy and society

 ALISON KITCHEN  GRANT WARDELL-JOHNSON

AUSTRALIA needs a rebound in economic activity, and productivity gains to bring us out of the recession – and a major impediment to driving our economy is unequal gender workforce participation.

Th e COVID lockdown has highlighted just how important childcare provision is to working parents, particularly mothers, who have wrestled with trying to work at home, while looking aft er pre-school children.

KPMG’s own Victoria offi ce has seen an 84 percent rise in carers leave requests during the period of Stage 4 lockdown – a proof point if any were needed on the importance of childcare.

Today we publish a report recommending some changes to the funding of the childcare system and we have found that short-term investment now will pay rich economic and social dividends in years to come.

Th e Child Care Subsidy: options for increasing support for caregivers who want to work is the fi ft h paper in our series examining gender issues in the workforce but is the fi rst since the COVID pandemic – which has added extra urgency to the need for reform, given the economic slowdown has hit lower earners, mostly women, hardest.

We have identifi ed two options – a preferred longer-term plan and an interim stage to get there, given the diffi cult fi nancial position the federal government now faces.

Th e fi rst option outlined is raising the Federal Government’s Child Care Subsidy (CCS) to a nearly fully-funded 95 percent, from its current 85 percent, which the study shows would boost the economy annually by up to $7.4bn, at a cost of $5.4bn in additional CCS expenditure (net of additional income tax receipts that would fl ow from the increased workforce participation). Th is, we believe, should be our long-term goal.

An additional cumulative benefi t to GDP would arise from this option, as parents increased their career-long productivity by being able to strengthen their engagement with work and professional development while their children are very young. Our modelling estimates that over 20 years this could add up to $10bn to GDP.

Th e second option – and a more realistic interim measure given its lower cost – involves the elimination of per-child subsidy caps, and an increase in the maximum subsidy for the lowest income families. We estimate the annual GDP benefi t of this policy option is $5.4bn, at a cost of $2.5bn (again, net of additional income tax receipts). Helping the worst-off must be the immediate priority.

A major issue explored in the report is how the CCS interacts with the income tax and family tax benefi t (FTB) systems – and it highlights how the progressive withdrawal of CCS and FTB and the subsequent increase in marginal tax rates can combine to create large disincentives to a parent working more hours.

Th is issue we have defi ned as the Workforce Disincentive Rate (WDR) – and our modelling confi rms that while the current CCS has improved the fi nancial position of many families, others continue to face WDRs topping 100 percent – meaning a family can actually be worse off if a parent works additional hours. Th e WDR problem aff ects people across the income scale.

Th e interim option we recommend will see the CCS modifi ed to eliminate the ‘cliff s’ inherent in the current system – where just one extra dollar earned could cause a household to lose up to $5,000 of subsidy.

Childcare is a barrier we have imposed on our economy and society – we fi rmly believe that Australia could cross a productivity frontier if we could remove that barrier. Th e study shows that annually an estimated additional 200,000 extra workdays per week could be unleashed by a near-fully-funded childcare system. Th is is why it must be our long-term goal, even if we have to get there in stages.

We have to start seeing childcare subsidy not so much in the prism of costs (as diffi cult as that is in the immediate circumstances) but as an investment in the ability of parents, especially mothers – given Australia’s historic ‘1.5 model’, where men work full-time and many women parttime – to maximise their contribution to the economy, according to their needs and preferences.

Australia is currently considering various stimulus measures to boost our COVID-impacted economy. Increasing productivity by boosting childcare support should be right up there.

First published by Alison Kitchen, National Chairman, KPMG Australia and Grant Wardell-Johnson, Lead Tax Partner, KPMG Economics and Tax Centre, KPMG Australia on KPMG Newsroom on 7 September 2020.

Time to look at strategies for repurposing

 PETER LIDDELL

WITH closed borders and the resultant fall in demand for Australian fresh produce normally destined for overseas Asian markets now is the time to look at how our national supply chain can be repurposed to address the disruption.

Th e supply chain is a business-to-business story (B2B) starting on the farm, or in the sea, with produce freighted into markets and food outlets. Th e last mile is a business-to-consumer story (B2C), right into people’s homes using e-commerce/last mile delivery platforms.

In response to the COVID-19 crisis, we’re seeing vital supply chain work being done with partners like Foodbank, and the utilisation of government care packages. But there’s also the opportunity for businesses to rethink domestic delivery capacity. Fleets of vehicles currently delivering supply of fresh products such as bread for four hours each morning, could have their capacity reutilised in other key parts of the supply chain. We could think of this as the ‘uberisation’ of transport and logistics.

Right now, the market wants fresh fruit and vegetables, seafoods and proteins. Yet at the same time there’s a slowdown of transport as domestic borders limit speed of delivery and the return of assets like trucks and containers. Th ere is also the rising cost of freight. Exports are experiencing limited access to airfreight (and even shipping containers) for fresh produce and excessive prices from <$1k up to as high as $25/ kg. Th ese prices don’t realistically support exports into Asian markets.

On the domestic front, the high demand surge for B2B-fi lling of retailer’s shelves and B2C-home deliveries for food, sporting and entertainment equipment is changing transport patt erns rapidly. Th at means pivoting and repurposing transport fl eets at the same time building in management of the vital aspects of OH&S and regulatory for food handling and dangerous goods.

What is the specifi c solution for the domestic supply chain right now?

We need to analyse current failures and choke points driven by the COVID-19 pandemic and build new business continuity planning models. Th e aim is to put supply chain front and centre in reshaping activities. In other words, identify by critical industry what must change to support Australia as a self-sustaining country.

Whilst certain businesses can defer activity like fi shing for lobster and other seafoods, other commodities like fruit and vegetables must be harvested or they go to waste. For these commodities, it is time to pivot and re-purpose – moving fresh into frozen products, extracting key properties as inputs into vitamins and supplements or as ingredients into food and beverage manufacturing. Th ese are just a few examples of how businesses must think diff erently during times when borders and access to traditional markets remain closed.

Additionally, we can also look at the fl ow of inbound and outbound products through the lens of regional and local supply chain fl ows. Wherever possible we must seek to utilise alternative modes of transportation and conduct trade-off s according to criticality, needs, cost, service, and risk scenario analysis of all viable options.

How can we understand ‘criticality’? Th e answer is fi rstly on type (fresh, perishable) and then supply criticality. We need to create inventory and supply visibility across the end-to-end chain – identifying those critical choke points and reconfi guring fl ows, storage, and domestic supply chain structures.

Supply risk management is based on four key factors: item classifi cation; supplier location (local, interstate, off -shore); alternate supply options, alternatives; available transport routes and lead-times (potential delays across state lines, access to road and rail freight, access to food containers).

Pivoting and repurposing also involves mapping the supply chain. Th at is about enabling bett er visibility of several tiers of suppliers, as well as the logistics between those suppliers. We need to know where the alternative routes and access points are to be ready when disruption (eg. no freight or container access) hits the supply chain.

Businesses need to conduct a value chain assessment of other risk factors that may escalate costs. Th is includes knowing that transportation shortages may increase cost (as transport companies see an opportunity to raise margins) and impact service and inventory capabilities. It’s essential to take proactive action to address anticipated shortages, such as possibly pre-booking/ consolidating freight for charters with others – even competitors! Another intelligent approach is to identify additional supply sources even across other industries, nearshore options and/or identify collaboration opportunities with competitors in the same geographical area.

By shift ing production closer to the end customer, organisations can off er faster fulfi llment at a lower cost and with a smaller carbon footprint. Micro supply chains also mitigate the impact of reverse logistics, the annual cost of which in the U.S. alone is expected to reach $550 billion by 2023. Working within rather than across borders means micro supply chains are far less vulnerable to changes in regulation, interest and exchange rates, wage infl ation or tariff s. Th e ability to manufacture in smaller batches keeps inventory costs and waste to a minimum.

Supply chains of the future won’t be driven by products and processes, but by customer needs. Th ey won’t depend on capital-intensive fi xed assets and linear fl ows but on an ecosystem of modular capabilities, delivered through a network of trusted third-parties that can be scaled and recombined as needed. It’s likely too that operators will become managers – and that means new skills will be required and new job roles created. Th at’s the evolution we’re seeing; pivoting and repurposing now will help us get there.