Australia continues to lag behind other developed countries in terms of the labour force participation of women, with policy settings around paid parental leave and child care undermining progress. The Activity Test, which limits access to subsidies for early childhood education and care, is one such policy that is acting as a barrier to women returning to work.

While the Activity Test was introduced to incentivise mothers’ participation in paid work, this is counter to the evidence that making child care cheaper and more accessible increases participation.

The authors of this report argue that removing the Activity Test and providing universal access to child care subsidies to every child according to the current means test can be expected to lift labour force participation by 39,620 mothers of children under the age of 5.

In addition to the benefits that would accrue to children over their life-course from better educational and labour force outcomes, this would add up to $4.5 billion to GDP from increased labour force participation of mothers.