Australia spends just under $1.4 billion (2012–13) on statutory Paid Parental Leave (PPL) to provide more than 130,000 parents with up to 18 weeks of parental leave paid at the full-time minimum wage.

The Abbott government proposes to pay primary carers at their pre-birth wages up to a cap of $100,000 for up to 26 weeks. This policy would dramatically increase government outlays on statutory PPL by over $3 billion by 2016–17.

This report describes how an Income Contingent Loans (ICL) scheme could be used to provide wage replacement paid parental leave for Australian parents. This scheme would provide the same social benefits that the current statutory PPL provides and meet the gender equity objectives of the Coalition’s proposal.

In contrast to the current and proposed statutory PPL policy, a PPL loans scheme would align the costs of PPL payments with those who benefit from them.

The proposed PPL loans scheme is modelled using representative data on Australian families with young children from the Household, Income and Labour Dynamics in Australia (HILDA) survey and the distributional implications compared with current and proposed PPL policy.

Matthew Taylor is a Research Fellow at The Centre for Independent Studies.