Am I making myself clear about paid parental leave?

Possibly not, with my piece on this topic squeezed by Mandela’s death, the imminent demise of the auto industry here and other pressing matters.

But I had this article in yesterday’s The Australian on my dislike of Tony Abbott’s paid parent leave scheme.  So as a Christmas treat – forget Sinc’s syrupy contributions (Boney M, I ask you?) –  I am reproducing my article below:

When my children were teenagers, one of their favourite films was Ten Things I Hate about You.  Based loosely on Shakespeare’s The Taming of the Shrew and starring a youthful Heath Ledger, I personally found the whole film rather mawkish and tedious.

You know the sort of thing.  Girl pretends to loathe lad.  Girl really likes lad.  Girl and lad sort it out and live happily ever after.  Throw in grumpy, obstreperous father of girl and that’s pretty much it.

But when it comes to Tony Abbott’s proposed paid parental leave scheme, I really do hate 10 things about it.  And there won’t be any happily ever after, no change of mind – this girl (mother and grandmother, in fact) is not for turning.

The basis of the proposed PPL scheme is that eligible new mothers will receive 50 per of their pre-birth earnings for six months, capped at $75,000.  The payment will be courtesy of the taxpayer – yes, we are all dying to chip in, or not – although large companies will be hit with a 1.5 per cent levy which will contribute to the cost.

For a government that is ostensibly committed to smaller government and the promotion of self-reliance – having a child is a private matter, after all – the very suggestion of this scheme is breath-taking.  In fact, this government should be trying to whittle down Labor’s much more modest scheme that is currently on the books.

So that is the first thing I hate about the PPL – its profound inconsistency with small government and the promotion of self-reliance.

The second thing I hate about this scheme is its cost.  While the figures will move around a bit, we are looking at the best part of $5.5 billion per year and rising, which compares with the current scheme’s cost of around $2 billion.

We are talking serious money for which there is a significant opportunity cost, either in terms of alternative government spending or lower taxes.  Given the government’s commitment to some expensive new initiatives, such as the National Disability Insurance Scheme, it beggars belief that such large sums could be allocated to a scheme that will benefit perhaps 150,000 women, many of whom are well-off.

My third odious point about the scheme relates to the presumed benefit of lifting productivity.  If we look at who currently returns to work after having children, it is the more educated and the more skilled. This makes sense because the cost of staying out of the workforce relative to the benefit of returning to work is largest for this group.

To the extent that the PPL does encourage more women to return to work after having children, it will be the less skilled and less educated who are disproportionately likely to return, thereby dragging down the average productivity of the workforce.

This point was made in the original Productivity Commission report which ushered in Labor’s version of a taxpayer funded paid parental leave scheme.

So when you hear various members of the government spouting on about higher productivity as one of the benefits of their PPL, don’t believe them.

My fourth issue is less hate and more doubt.  It concerns the impact of the PPL on female labour force participation.  It is of course paradoxical to think that paying women to take time off – indeed, more time off than they would otherwise take off – will increase labour force participation.  In a very short run sense, the effect is the reverse.

There may be some women who will return to work after child number one in order to receive the PPL benefit when child number two arrives.  But whether women, having completed their families, will be more inclined to return to work simply because the taxpayer has stumped up some funds to cover the first six months of their child’s life is highly debatable.

A taxpayer scheme is also very different from one privately funded by employers, which latter will often make the grant of paid parental leave conditional on the woman returning to work for a specified period of time.  Moreover, there is a sense of attachment and obligation to the employer if that employer is actually paying for the parental leave of employees but which is absent from a taxpayer funded scheme.

In a weird way, this point of difference was acknowledged in one aspect of the current scheme because employers have been forced to launder taxpayer funds to ‘pay’ paid parental leave to their employees on leave.  The idea is that this pretence would induce a degree of on-going attachment between employer and employee which is largely absent when the taxpayer is overtly picking up the tab for the cost of the leave.

It is interesting to note that this aspect of the scheme is being dropped as it has proved too costly and administrative complex for employers.

In terms of the impact of taxpayer funded parental leave on female labour force participation, we already have some evidence from the current scheme, which has been running since the beginning of 2011.  There is absolutely nothing in the figures to suggest that there has been an uptick in the workforce participation of new mothers.

As was the case before the scheme was implemented, a clear majority of mothers do not return to work before their baby turns six months and, in fact, a majority of new mothers have still not returned to work when their baby turns one.

But here’s a real kicker for the souped-up version of PPL being proposed by Tony Abbott – it is the delta (the change) that counts in terms of the policy impact.  The key question is: what will be the additional impact on the participation of new mothers associated with the expenditure of the extra $3.5 billion per year?  I can tell you the answer now, without even bothering to do the figures.  The costs will greatly exceed the benefits.

My fifth worrisome point is that Tony Abbott’s PPL will completely crowd out all current paid parental leave schemes operating in the private and public sectors.  Given the generosity of the PPL, there is no way that current arrangements (which cover over half of working women who have given birth) will continue for very long.  This is a very damning point because these private schemes have additional benefits beyond the financial assistance given to new mothers.

My sixth issue picks up the importance of child care, both in terms of cost and availability, in driving mothers’ decisions about participating in the labour market.  Most women will tell you that what happens in the first few months of a child’s life is all very well, but the much more significant issue when it comes to ongoing attachment to the workforce is childcare.

It is here the wheels have really fallen off the wagon as the previous government attempted to assist its union mates by pushing for unsustainable pay rises for childcare workers and over-regulating the industry to the point of strangulation.  The Abbott government would be well-advised to concentrate its efforts sorting out the disastrous state of childcare, in terms of fees, availability and flexibility.

My seventh point of dislike is the uneven treatment of new mothers depending on their prior employment status.  Is it really fair for taxpayers to be forking out $50,000 to one high-paid woman who has been working before having a child and a meagre baby bonus of between $1,000 and $2,000 to another woman who has been staying home looking after other children?

And note that the watered-down baby bonus is strictly means-tested – much more strictly means-tested than Abbott’s PPL. A woman earning $200,000 per year who gives birth will still receive $75,000 in paid parental leave.  Their high income does not exclude them from the scheme.

If one of the aims of the PPL is to provide an environment conducive to the healthy early development of children, by allowing mothers to focus on their newborns, this wildly different financial treatment of the two groups of women is completely illogical.

Point eight is the supposed impact on fertility.  Will the PPL persuade working women to have a child or more children?  There is, of course, a prior question and that is whether governments, courtesy of the taxpayer, should be promoting fertility.  On recent estimates, we appear to be heading towards a big Australia in any case.  Moreover, any small change in fertility associated with this expensive PPL would have a very small impact on the ageing of the population.

My ninth issue relates to the scope for rorting within the system.  Think self-employed and family companies.  It would be relatively easy to funnel a significant salary to the expectant mother and claim the PPL benefit even if the expectant mother is not really gainfully employed.  The compliance costs of tracking down these cases will be high and so a number of ‘undeserving’ cases will slip through.

Point number ten is about the levy on large companies.   What is the Coalition thinking – raising the rate of company tax when all the pressure is to lower it? After all, Australia’s rate of company tax is high by international standards.

The argument that there will be an offsetting reduction in the company tax rate of 1.5 per cent is neither here nor there – the government should be motivated to decrease the rate of company tax for companies of all sizes.  The net effect of the levy will be to reduce employment and investment.

And a related point – let us call it 10(b) – is that franking credits will not apply to the payment of the levy, so shareholders will also be asked to pitch in to fund this government boondoggle.

So there we have it – ten things I hate about Tony Abbott’s PPL.  I am hoping the Commission of Audit might see the light and conclude that, in a list of possible items on which precious taxpayer funds can be spent, this souped-up PPL comes right down the bottom.

Maybe if we could afford it, maybe if the state of the budget were healthier, then some consideration could be given to improving the current version of PPL, although personally I would be cutting even this back.

But read my list of 10 things I hate about Tony Abbott’s PPL and think again.  I’m sure the electorate would understand – in fact, I think they would be relieved.  And unlike shrewish Katerina, I really mean it.

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41 Responses to Am I making myself clear about paid parental leave?

  1. I paused at the “laundering” comment, wondering what it means, but then realised we have just done this. We have someone on maternity leave and after a lot of waiting we got the money, and then had to give it to her. Struck me as strange at the time. Now I see it is ridiculous.

  2. .

    Judith,

    Please consider running for Parliament.

  3. johno

    For a government that is ostensibly committed to smaller government and the promotion of self-reliance – having a child is a private matter, after all – the very suggestion of this scheme is breath-taking.

    Judith, you are an intelligent woman who have been a keen observer of Australian politics for many years and who doesn’t normally fall for all the stuff and nonsense that gets thrown around by political parties. Why then are you claiming that the Liberal Party believes in small government and self-reliance! Can to cite a single piece of evidence to support this claim?

    The Liberal Party believes in using the rhetoric of small government and self-reliance to sucker people into believing it believes in small government and self-reliance. It might not be as rampant as Green Labor and it might be a little more hesitant in embracing big government schemes, but it does it anyway.

    One of the big challenges of the Liberal Democrats is to mount a convincing argument for small government and self-reliance and to highlight the Liberal Party’s lack of belief in them.

  4. gary

    The problem is when the voters sack a financially competent government like Howard’s and vote in an incompetent rabble like Rudd/Gillard. What incentive is there for a Liberal government to spend another thirteen years getting the budget and debt back under control, then when the Liberals can start to implement their policies without the pressure from paying off Labor’s debt, they get sacked and the ALP get in again and ruin the country’s finances again.
    We need the debt ceiling to be zero and included as part of the constitution so the government must balance the budget each year.

  5. Badjack

    @1102159…….

    Judith,

    please consider running for Parliament.

    Not likely……to be consistent she would have to criticise herself ….and that’s not likely at all.

  6. Tel

    Why then are you claiming that the Liberal Party believes in small government and self-reliance!

    Why do you ask a question with an exclamation mark?

    Why does Judith choose the words, “ostensibly committed to smaller government”?

    Abbott’s parental leave scheme was promised before the election, he can’t go back on it now, regardless of the additional government interference. Besides, the Catholic Church has baby production quotas.

  7. Allan

    Philosophically I come from the attitude that if you cannot look after your kids don’t have them. I do recognise that some people need assistance BUT it has already gone too far. We are living on borrowed money now (thanks to the Labor money squanderers) and the prospects for Australia to generate significant funds to reverse the trend let alone keep funding huge promises let alone pay the debt back, has been staring us in the face for a long time now.
    We have to make choices based on priority NOW.
    PPL (Abbott’s major bad proposal is not essential and involves little upset to dump it as no-one is getting it now) is not as important as NDIS (needs tight control too), funding infrastructure , funding (PROPERLY) our Defence Force or health or ageing population or paying back the debt.
    As for GONSKI – cap expenditure now in money terms for 5 years and get efficiency into education.
    PPL in its current form is way down the list of importance for receiving scarce resources – to increase it is madness. Middle class welfare has to be reigned in NOW. The first start is not to increase it.

  8. dd

    Yep, it’s bad policy all around.
    But it was popular. Remember how it went down in the election campaign? The public liked the sound of it, and Abbott liked the sound of the public liking it. The problem with policies is that in the medium term it’s not enough for them to sound appealing; they also have to work well once you actually put them into practice.

  9. johno

    Abbott’s parental leave scheme was promised before the election

    Why would anyone who believed in small government and self-reliance make such a stupid promise?

  10. .

    Besides, the Catholic Church has baby production quotas.

    Please explain.

  11. Tel

    Why would anyone who believed in small government and self-reliance make such a stupid promise?

    We are talking about someone who ostensibly believes in small government and self-reliance, making a promise to help them win an election.

  12. dd

    Early on, Abbott made a speech – I think it was a reply to budget – in which he railed against Labor and said that he would make no promises except to fix the mess.
    It was a terrific speech.
    He subsequently completely caved in and made all sorts of ridiculous promises.

  13. Larry

    Yes Tel ostenibly, Shame on them.

  14. candy

    Gee, Ms Sloan has really got it in for Tony Abbott these days! With friends like these …

    The PPL is popular though it’s going to have to be watered down a bit.

    It’s in the distance, in any case. The parliament is virtually unworkable as Labor
    obstructs all policy and as I see that is their policy, to block all legislation and weaken the
    government, even if legislation is in the national interest.

  15. Jessie

    Judith this is a comprehensive list of the problems with PPL, thank you for reposting your article.

    The involvement and interference by all levels of government in fertility and childcare has created a victimhood mentality, the void to be filled by an over-regulated and unionised childcare, centrelink and property inspection workforce.
    20 years ago, aided by gaggles of middle class busybodies the government began interfering with mothers. These were the mothers who between themselves privately arranged their child-care needs in an effort to maintain part-time careers or some child-free time. Abbott’s proposal is not new, just more palatably publicised.

    *child free time as in unnecessarily having to bundle children into a car, bus, taxi to co-attend adult appointments or events.

  16. CD

    Judith by my figure work we are not paying women 50% of their wages capped at $75.000. Woman earning $150,000 will be paid $75,000 for 6 months and those earning less will get full pay. Therefore it is 100% for earnings of $150.000 and under.

    Have I got it right?

  17. The worst thing is, Abbott didn’t need to promise anything. He was always going to sail in on anti-Labor sentiment. The result is that the left ended up with more than they wanted WRT paid parental leave, yet we’re able to criticize it at the same time.

  18. Stupid iPad spellchecker! “were”, not “we’re”! It changed the whole context grrr…

  19. Judith would be better suited running for Parliament for the LDP.

  20. .

    Even monty endorses you, Judith.

  21. Piett

    Sorry folks, it can’t be turned around now, and nor should we be advocating this.

    It was the flagship policy of the LNP campaign. To revoke it now would make Abbott seem weak, unsure, vacillating. You want a PM like that? The ALP would circle like vultures: they would make the centrepiece of the next campaign the proposition that you can’t ever trust the Libs to implement election promises.

    Those — including me — who don’t like the PPL on policy grounds should be urging the government to:

    (1) build a sunset clause in the legislation, so that it is not seen as a permanent, untouchable entitlement;

    (2) arrange for a review by the PC to coincide with the sunset.

    If the PC finds PPL has made undeniable, dramatic improvements to productivity or participation, then fine, it stays. Otherwise, it’s classed as a noble policy experiment, and gets canned.

  22. Andrew

    Early on, Abbott made a speech – I think it was a reply to budget – in which he railed against Labor and said that he would make no promises except to fix the mess.
    It was a terrific speech.
    He subsequently completely caved in and made all sorts of ridiculous promises.

    Yeah, that was the budget reply speech. It was an excellent speech, excluding the part about the PPL. However, I find that there is big gap between what Abbott preaches in these speeches and what he does in practice. The rhetoric in the speeches are ‘ideologically satisfying’ yet in practice it fails to live up to expectations.

    The PPL is popular though it’s going to have to be watered down a bit.

    I question that. A lot of people saw the policy as a way of paying rich women to take care of their babies. It confirmed a prejudice for people that the Liberal Party only governed for the rich.

  23. Paridell

    It was something big to get the attention of well-off women who might otherwise vote for Julia – the ones who were the target audience for the “man-in-a-blue-tie” speech. It is hard to believe, but even now there are plenty of them who supported her and still sympathise “because she is a woman”.

  24. Judith Sloan

    CD – it is 50 per cent of pre-birth earnings up to a cap of $75,ooo in total ie. for someone on $150,000 pa and over.

  25. stackja

    Liberty Quotes
    “No politician is any longer interested in the question whether a measure is fit to produce the ends aimed at. What alone counts for him is whether the majority of the voters favor or reject it.” — Ludwig von Mises

    So voters have to decide.

  26. .

    I question that. A lot of people saw the policy as a way of paying rich women to take care of their babies. It confirmed a prejudice for people that the Liberal Party only governed for the rich.

    I agree, scrapping it could be done to skewer fools like Kim Il Carr

  27. I doubt it will get the LDP or Family First’s vote after June.
    It could be delayed when the ‘surprise’ budget emergency is revealed in May.

  28. Mitch

    I wonder whether, absent her opposition to this policy, Judith may have been appointed to the Commission of Audit.

  29. Kaboom

    It is, in my humble view, poor policy, and something that this nation can ill afford after the Labor six year wild spending policy debacles.

    I do not know what possessed Abbott666 to elevate this poor policy to an election pledge status. I can, however, see where he is coming from. Demographically, as people like Mark Steyn have pointed out, the productive, taxpaying class (“the makers”) are not breeding in sufficient numbers to even have a hope of maintaining a similar number of future taxpayers as today.

    For instance, in Italy (a staunchly Roman Catholic nation), I believe that the birth rate is 1.7 per female, which is below population replenishment rates. We will start to see a significant paradigm shift in China, as its “one child” policy starts to have a demographic effect.

    On the obverse, the non-productive welfare recipient class (“the takers”) are breeding like rabbits, and an uncharitable person might well assume that there is an economic imperative to this, what with the “baby bonus”, and public housing entitlement (and indeed the amount of welfare) escalating with increasing family numbers.

    The Abbott666 plan was simply to increase the number of “makers” having children (as opposed to “takers”), on the reasonable assumption that the children of “makers” would ultimately become “makers” themselves.

    A ghastly error making this an election pledge. The same outcome could so easily have been achieved by tweaking the taxation treatment of non-working partners. An enormous societal benefit wasted on an unachievable election promise.

    Governing for popularity in the polls rather than governing for the benefit of society is a huge mistake. What is Abbott666 frightened of, given the Government’s clear mandate?

  30. Tel

    Yobbo, I’m not an expert in immigration law, but the example you pointed to was fixed a year later.

    http://www.visabureau.com/press-release/06-03-2006/same-sex-couples-welcomed-in-australia.aspx

  31. Mundi

    My wife just had twins. To think under this system we would be given $75,000+ is absolutely absurd.

    Where doest his idea of getting paid your wage while sitting at home with a baby even come from? It is ludicrous. It is the complete opposite of social responsibility. We saved for years and got in a position to get by on one income, now future generations will have money thrown at them?

    The fact that higher paid ladies get higher welfare is even more ridiculous.

    If this does go ahead there is going to be a huge life style gap between pre 2014 baby families and the rest. Why is the first 6 months given such ridiculously high importance?

  32. dd

    It was the flagship policy of the LNP campaign. To revoke it now would make Abbott seem weak, unsure, vacillating.

    Hang on, I thought revoking the carbon tax was the flagship of the Coalition campaign. Or maybe stopping the boats. Or ending the waste. This seems to be undermining that last flagship, if it is in fact possible to undermine a ship. How many flagships were there, anyway?

    The PPL scheme seemed like one of those thought-bubble feelgood ideas that usually turn up for elections then disappear soon afterwards. Of course he can’t revoke it now. He’s stuck with it. The whole country is stuck with it. We don’t have to be happy about that.

  33. Docket62

    Given the legacy of the Broadband farce, and it’s gob smacking cost, from a personal POV I’m happy to let tony have a couple of ‘own goals’ with the PPL scheme, Gonski etc. I personally think he’s simply treading water, loading up and waiting to fire once he has a workable senate- but then. I’m not in his shoes. I dislike labour/green intensely, so given the debacle of the last 6 years… I’ll give him a little more than 3 months before I start passing judgement.

  34. Piett

    Hang on, I thought revoking the carbon tax was the flagship of the Coalition campaign. Or maybe stopping the boats. Or ending the waste. This seems to be undermining that last flagship, if it is in fact possible to undermine a ship. How many flagships were there, anyway?

    dd, revoking the carbon and mining taxes were negative things, in the sense of getting rid of Labor mistakes. “Stopping the boats” was a promise of better operational management. All good things, very worth doing, but in terms of a legislative platform, a party can’t just be about repealing laws (as much as libertarians would like that).

    PPL was the flagship in the sense of the only big new positive legislation, the only attempt by the Libs to nudge society in a particular direction. All we can do now is ask the Libs to be empirical in assessing whether it works or not.

  35. dd

    PPL was the flagship in the sense of the only big new positive legislation, the only attempt by the Libs to nudge society in a particular direction.

    Roads, dams, ports. The coalition talked big on those for about 23 seconds.
    What happened to them?

  36. dd

    Didn’t excite the focus groups, I expect.

  37. Andrew

    The PPL scheme seemed like one of those thought-bubble feelgood ideas that usually turn up for elections then disappear soon afterwards. Of course he can’t revoke it now. He’s stuck with it. The whole country is stuck with it. We don’t have to be happy about that.

    It was purely Tony’s policy, cabinet had very little to do with constituting the policy. It caused a lot of tension because of that exact reason.

  38. tomix

    Sounds like Tony is turning into Turnbull. Can’t end well.

  39. Jeremy

    Very good article Judith. One of the biggest problems with the policy is that it never had a reason for being other than to sound woman friendly. If it’s purpose is defined (probably to encourage childbirth) a dozen simpler and cheaper ways will be found to achieve that purpose. If the purpose is to encourage childbirth among working mothers it will simply fail. To increase the birth rate in Australia to a ‘sustainable’ level we need women to have 3 or 4 children to make up for the ones that have none. Women who have 3 or 4 children are generally not able to work while the children are young as there is too much mothering to do. Tony’s policy ignores the women who need our support, the full time mothers.

  40. LABCR-TV

    I am disgusted with Abbott’s PPL policy. It was blurted out without any debate or discussion just before the election in a moment of panic.

    Then I was hoping that he might have been smart and set up a scheme a bit like those funeral plans; where couple pay in advance an amount they choose over a time frame of their choice, in return for an agreed period of coverage and payment, at no cost to the taxpayers.
    Now he is going to bring a socialist PPL policy which could have been accidently faxed from a labor bunker.
    Disgusting.

    Abbott, Gillarudd would be proud of you and your policy.

  41. Jazza

    Relax. This, as with all the government’s polices, has to be passed in two Houses.
    it may well be thrown out–can you see it as a trigger for a DD?– I cannot
    I reckon the ALP will dig in as they won’t want their baby taken away, the new Senate might just balk at this policy also–only the Greens remain a possible ally s they are so “liberal” with the country’s money when they get the chance, but then again they cannot be taken for granted as supportive and would no doubt beg favours in return.

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