At last, PPL targeted at those who need it

Budget 2015 proposes to do what the Gillard government should have done in 2011: Ensure taxpayer funded Paid Parental Leave (PPL) payments go to those who need them.

The government claims their PPL budget measure will save just under $1 billion over 4 years and put an end to `double dipping’ in which parents collect taxpayer funded PPL payments on top of their parental leave workplace entitlements, a practice the Treasurer has agreed is `basically fraud’.

There are strong arguments for tightening access to PPL payments and this budget measure is a step in the right direction — though not for the reasons that the government claims. Despite the high rate of private PPL coverage among high income women — often at full replacement wages — parents with incomes up to $150,000 can pocket the full PPL payment of $11,500 from the taxpayer on top of their workplace entitlement.

The government proposes to restrict the full payment to those who do not have private workplace entitlements, and provide top-up payments to those whose employer’s conditions are less generous than 18 weeks of the full-time minimum wage. This move will see 34,000 parents lose their PPL payments and 45,000 receive top-ups from the government.

Ged Kearney, at the Australian Council of Trade Unions, claims that to describe taking the payments on top of PPL workplace entitlements as “…’double dipping’ fundamentally misrepresents the paid parental leave scheme which was always intended to complement employer-based entitlements.”

This is true. The architects of the PPL scheme were clear that employees should be able to “…take statutory paid parental leave at the same time as other privately negotiated leave.”

Calling parents `double dippers’ for using the scheme as it was intended is a bit unfair; and calling them fraudsters is extremely unfair. But this does not change the fact that the taxpayer is not getting value for money when it comes to the $1.9 billion that will be spent on PPL in 2014-15.

The government’s proposal goes some way to addressing this.

If the objective of this government assistance is more parental leave, rather than merely supplementing the incomes of parents while they take the leave period they had always intended, it is worthwhile asking: does PPL expenditure increase the amount of full-time care newborns receive from their parents?

According to an evaluation of the PPL scheme commissioned by the Rudd government the introduction of PPL payments increased the percentage of mothers taking at least 18 weeks of parental leave by 7.5% but did next to nothing to increase the percentage who took 26 weeks.

This is despite the fact that in 2012 almost 90% of women on collective agreements with PPL workplace entitlements had access to at least eight weeks of parental leave. The available evidence would suggest PPL expenditure does more to supplement incomes than it does to ensure newborns receive more time with their parents.

Would these 7.5% of mothers continue to take 18 weeks of parental were the government to better target PPL payments?

This depends on who they are. If they have no PPL workplace entitlements, they would continue to receive the $11,500 from the government and take 18 weeks. If they have PPL workplace entitlements, but would not have taken 18 weeks without the payment, they might take less leave as a result of the budget measure.

However, it is important to put this in perspective.

After taking into account the additional spending on Family Tax Benefit and Baby Bonus had parents not taken parental leave, the additional cost of PPL was $270 million in 2011-12. If these payments were responsible for just 7.5% of the 125,000 parental leave periods funded by the taxpayer in that financial year, then this sum is being spent on increasing the parental leave of fewer than 10,000 children.

While the government’s move is a step in the right direction, the proposed reforms are unlikely to provide the $1 billion in savings the government is hoping for. It is more likely the employers of the 45,000 parents with less generous workplace entitlements will cease to offer them and shift the cost onto the taxpayer.

If the government is serious about equitable and sustainable PPL spending that gives all newborns a chance at 26 weeks of full-time parental care, it should consider a HECS-style income contingent loans scheme for parental leave.

This would allow parents to finance wage replacement parental leave out of their own future income rather than shifting the cost of PPL payments onto the taxpayer. It would also mean workers would no longer have to trade off wages for PPL workplace conditions.

But what the budget will achieve is to give us the PPL scheme we should have had from the beginning: One targeted at those parents who need it most.