Target paid parental leave by need

WHEN Tony Abbott reluctantly hammered the final nail into the coffin of his signature paid parental leave scheme, the sigh of relief from the Coalition partyroom must have been palpable.

Backbenchers have been telling the Prime Minister for the best part of a year that their constituents would be unable to reconcile more than $3 billion of additional PPL expenditure with a budget emergency.

The PM’s scheme was derided as “gold-plated”. The increase in the rate of payment from 18 weeks of the full-time minimum wage to 26 weeks of the primary carer’s wage, capped at $100,000, would have ensured $50,000 payments went to the highest income families. While the scheme was undoubtedly deserving of such derision, many of the criticisms could equally be levelled at current PPL policy.

Most of these payments go to families who do not need them and for whom there is no additional labour force participation. Under existing policy, payments of up to $11,539 go to parents with incomes as high as $150,000. These parents are among those who are most likely to have already negotiated PPL entitlements with their employers. According to the 2012 Household, Income and Labour Dynamics in Australia survey, more than four in five working women aged 19 to 45 with annual earnings over $80,000 had access to paid maternity leave as a workplace entitlement.

If government-funded PPL payments are really about promoting maternal health and child development, they will do this only if they are targeted at parents who need them.

According to the HILDA survey, it is low-income parents who are least likely to have PPL workplace entitlements. About 40 per cent of working women with annual earnings under $30,000 reported having access to PPL workplace entitlements.

Providing PPL payments to high-income parents, those who already have PPL workplace entitlements and those most able to save to finance their parental leave produces no additional maternal health and child development benefits.

There is another reason to focus payments at the lower end of the labour market: it is consistent with the government’s previous rhetoric that PPL is a “productivity measure”. The architects of the existing PPL scheme at the Productivity Commission were clear that payments “would create good incentives to work for lower income females, since the payment is significantly more than the value of income support for women working in the unpaid sector”.

There are no additional labour force participation incentives for parents who earn above the full-time minimum wage. These parents are already in the workforce and will receive no more income from work than they would in the absence of these payments.

If these payments were restricted to working parents with earnings at, or below, the full-time minimum wage — those least likely to have PPL workplace entitlements — the budget savings could be as much as $1.2 billion.

Some will argue that the levy on corporate profits that was earmarked to fund the PM’s scheme ensured the PPL expenditure was fully funded. A levy on company profits means less dividends going into super balances; this may delay when the tax burden is felt but does nothing to assuage the cost imposed on taxpayers.

Now that the PM has abandoned his PPL scheme he should also abandon the corporate tax levy. This may be only a small contribution to the overall task of budget repair but it would signal the government was serious about putting the budget back in the black and intended to do so by targeting taxpayer-funded assistance to those who needed it most.

Matthew Taylor is a research fellow at the Centre for Independent Studies.