Complications In Parental Leave Scheme Guarantee A Difficult Delivery

Sydney Morning Herald

Friday October 3, 2008

PETER McDONALD. Peter McDonald is director of the Australian Demographic and Social Research Institute at the Australian National University.

The Productivity Commission's proposed paid parental leave scheme allows for 18 weeks of leave at the minimum wage of $543.78 a week, or a total of $9,788. The scheme would be wholly funded by the Federal Government, but employers would have to contribute the corresponding superannuation guarantee amount.

Two of the 18 weeks are a "use it or lose it" provision for fathers, so for mothers we are talking about 16 weeks.

The chief rallying cry for paid parental leave has been that Australia is the only country in the Organisation for Economic Co-operation besides the US that does not have a "universal" paid maternity leave scheme. With this proposal, we can now shout hurrah! Right?

First, let's deal with the implication that Australia is an ungenerous country that does not support those with young children. In fact, Australia ranks sixth out of 29 countries in the OECD on child subsidies as a percentage of gross domestic product. If the comparison is restricted to support in the first year of a child's life, Australia ranks in the top two. Australian mothers already receive between $8,000 and $12,000 in the first year of their children's lives.

Furthermore, many so-called universal paid parental leave schemes in other OECD countries are far from universal, because eligibility criteria rule out large numbers of new mothers.

The proposed eligibility criteria in Australia would do the same. The president of ACTU, Sharan Burrow, has already called for a scheme that covers all new mothers.

Two large groups of mothers will gain nothing from the proposed scheme: those who are ineligible because they have not worked an average of 10 hours a week (with one or more employers) continually for the year before the birth, and those whose income in the tax year in which they receive the payment is more than $34,000.

For work to be "continuous" in the year before the birth, do mothers become ineligible if they withdraw from the labour force because of illness during the pregnancy? Does "continuous" mean working right up to the day of birth? The commission highlights the difficulty of policing eligibility for those who are self-employed or employed in family businesses. Where the mother began working for her current employer during the year before the birth, the employer will need to check with previous employers if she worked for them continuously and for how long. So, there is some potential unfairness here and a high degree of complexity.

A sure sign a proposed new policy is problematic is the provision that people can opt for existing arrangements instead. This is the case with this proposed scheme. Why would a woman opt for the existing arrangements instead? There are two main reasons.

Any woman with an income in the birth year of more than $34,000 would be financially better off under the existing arrangements. This is because the loss of the baby bonus and Family Tax benefit Part B would exceed the after-tax benefit paid under the new scheme.

Another substantial complexity is that, because the proposed benefit will be taxed, the amount received will depend upon when in the tax year the mother gives birth. The calculation will differ for every case. This is not a good characteristic for a publicly funded and administered scheme.

Paid parental leave has several, sometimes conflicting, rationales. The proposed scheme has failed to please child development experts, who argue nothing less than 12 months' leave is required for the good of the child. To do this on a universal basis would cost about four times the combined cost of the new scheme and the baby bonus, or about $8 billion a year, plus the lost tax revenue. Public funding of such a scheme is unlikely. A HECS-style loan approach seems like the best way to do this.

What would I do? If $250 million were added to the proposed cost of this scheme, all women could be provided with a maternity allowance equal to the minimum wage for 16 weeks. No administrative costs involved. No complexity. And let's not take the wind out of the sails of claims for employer-funded maternity leave on full wages. Remember the highly enlightened Woolworths decision to allow eight weeks on full pay.