Labor's $250m paid parental leave plan is not so super - The Centre for Independent Studies
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Labor’s $250m paid parental leave plan is not so super

The government has committed more than $250 million to expanding paid parental level. This is on top of the $600 million plus expansion of the scheme back in October 2022.

While the last expansion at least put more money into the hands of parents, this one has little to recommend it, missingthe mark in several ways.

If the government has an extra $250 million to spend on paid parental leave, it seems a safe bet that almost all families would prefer that extra money as cash now, rather than have it locked up in super for 30 years.

After all, the whole rationale of paid parental leave is to help new parents struggling to fund extended time out of the workforce along with the expense of a new baby.

But this suggests the problem is not the absence of super but that paid parental leave often represents a significant reduction in salary, as it is set at the minimum wage.

This is not the only flaw in the reasoning.

One rationale put forward in justification of the payment of super is the pretence that paid parental leave is a workplace entitlement. The problem is that it functions a welfare payment.

If it were a true workplace entitlement it would be paid by the employers, and paid at the workers rate of pay (like sick leave). It would then attract super as well.

There are more fundamental problems in the thinking justifying this decision.

This move is being celebrated as a strong blow for gender equity, with the primary justification being that women retire with 25% less super than men, on average.

However, using averages across enormously broad categories like gender is a terrible way to make policy. The fact that women have less super than men on average tells us nothing about whether any individual should receive a boost to their super.

A woman with a large super balance is not more deserving of government support than a man with a lower balance just because other women have a lower balance.

Related to this, the reasons women have a lower super balance at retirement than men are only tangentially connected to parental leave. There are far bigger contributors to this gap.

One is that women are more likely to work part time, and seek more flexible (but lower paid) working arrangement, for years following the birth of children.

It is this career pathway — not a 3 to 6 month parental leave gap — that contributes to lower lifetime earnings and therefore lower super balances at retirement.

It is not merely the fact that many women choose to work part time that impacts the gender gap in superannuation. Higher-paying jobs tend to be those least likely to offer the flexibility needed to support young families.

For many families, it makes more financial sense for one partner to work longer hours in a more demanding job 5 days a week, while the other partner does 2 or 3 days a week, than it does for both to work 4 days in more flexible jobs.

The impact of high effective marginal tax rates on the second earner exacerbates this trend.

Another big reason is that the gap is measured against a subset of the population (people aged 60 to 64) who entered the workforce in the 1980s; before compulsory super even began in the early 1990s.

While there had been considerable progress in women entering the workforce by this time, it was far less equitable than it is today. Female workforce participation has increased by more than 10 percentage points since 1991.

Moreover, women now represent a significant majority of those graduating university, while in the 1980s it was the other way around. Women continue to make up a greater proportion of graduate positions in high paying careers too;for example, almost two-thirds of graduate lawyers are women.

Over time, we can expect this to narrow the gap on super too.

Nor should we ignore the interests of taxpayers who are being expected to fund this increase. It is hard to see any benefit whatsoever to taxpayers in using welfare payments to top up superannuation.

Taxpayers already provide funds to those with inadequate super balances in retirement through the age pension. There is no reason to think it would be more efficient to prepay age pensions upfront through superannuation top ups.

Remember, although superannuation is physically paid by your employer, the evidence is overwhelmingly clear that it is paid for by individuals: it is your money that is being compulsorily deposited in a retirement account.

Taxpayers provide some incentives to the system through tax concessions; the rationale for these concessions being that superannuation will save taxpayers some money in age pension payments. No such benefit accrues if the taxpayers pay now, and probably later as well.

In fact, this represents yet another expansion of taxpayer contributions to a retirement system that is already heavily supported by taxpayers.

Australia has a significant advantage over many nations in that our welfare system remains highly focused on need. This has kept the costs lower than they are in many other countries, and avoided the looming bankruptcy crises; for example, in the US over their social security system.

However, this focus on need is at risk of being overwhelmed by those who would prefer to use the power of government (and taxpayers’ money) to force more equal outcomes on society.

The cost of this expansion of paid parental leave is relatively minor in the overall scheme of the budget, but the cost of chasing equal outcomes is almost infinite.

We shouldn’t waste taxpayers’ money on poorly thought out social experiments in gender equality.

Simon Cowan is Research Director at the Centre for Independent Studies.

Photo by David Peterson