As the May budget draws nearer, women’s groups, business and political watchers alike are anticipating the incorporation of the Abbott government’s flagship paid parental leave scheme, funded partially by a 1.5% levy on big business.
The government’s vocal commitment to this $5.5 billion scheme sits uncomfortably alongside rhetoric about the end of the age of entitlement and the need for tough choices to be made to improve the nation’s finances.
The scheme has been justified by the government as an ‘investment’ amid suggestions it will improve productivity. Rather than paying the minimum wage, workers covered under the scheme will be paid at their replacement wages, on the basis that doing so will improve participation, boost women’s super at retirement and increase fertility. These claims are either wrong or greatly exaggerated.
It’s highly unlikely there will be an increase in fertility. As the government is fond of pointing out, the proposed scheme bears a greater resemblance to those in place in other OECD countries compared with the existing scheme. Unfortunately, the enthusiasm for making this point masks the fact that these generous schemes in countries like Sweden and Norway have produced fertility rates virtually indistinguishable from our own. Strike one.
The other significant difference is that the proposed scheme includes superannuation at the going rate (currently 9.25%), which will boost a woman’s super accumulation by somewhere in the vicinity of $50,000 for an average full-time income-earner. These increases are real. But the dent in women’s savings at retirement compared to men’s is not caused by six months of parental leave; it’s the years spent in low-paid part time or flexible work due to personal choices or inadequate childcare availability. Strike two.
Productivity and participation are the bigger issues. They are not the same thing – if more low-productivity workers shift their behaviour and re-enter the workforce than higher-productivity earners, participation goes up but productivity doesn’t. The high-productivity earners the government wants to entice back into the workforce are most likely to go back anyway, thanks to high pay and generous employer-provided enticements like flexible work and on-site childcare. Strike three.
Paid parental leave is not a concept without any value: improving women’s participation is one way to broaden the tax base over the medium-term to tackle coming fiscal problems, and it has other benefits too. But all the evidence suggests that this scheme is not the way to go about it. Nor do the alleged benefits to fertility and income upon retirement hold enough water to justify the scheme. The government should go back to the drawing board on this one.
Trisha Jha is a Policy Analyst at The Centre for Independent Studies.
Home > Commentary > Opinion > Busting the myths of the paid parental leave scheme
Busting the myths of the paid parental leave scheme
The government’s vocal commitment to this $5.5 billion scheme sits uncomfortably alongside rhetoric about the end of the age of entitlement and the need for tough choices to be made to improve the nation’s finances.
The scheme has been justified by the government as an ‘investment’ amid suggestions it will improve productivity. Rather than paying the minimum wage, workers covered under the scheme will be paid at their replacement wages, on the basis that doing so will improve participation, boost women’s super at retirement and increase fertility. These claims are either wrong or greatly exaggerated.
It’s highly unlikely there will be an increase in fertility. As the government is fond of pointing out, the proposed scheme bears a greater resemblance to those in place in other OECD countries compared with the existing scheme. Unfortunately, the enthusiasm for making this point masks the fact that these generous schemes in countries like Sweden and Norway have produced fertility rates virtually indistinguishable from our own. Strike one.
The other significant difference is that the proposed scheme includes superannuation at the going rate (currently 9.25%), which will boost a woman’s super accumulation by somewhere in the vicinity of $50,000 for an average full-time income-earner. These increases are real. But the dent in women’s savings at retirement compared to men’s is not caused by six months of parental leave; it’s the years spent in low-paid part time or flexible work due to personal choices or inadequate childcare availability. Strike two.
Productivity and participation are the bigger issues. They are not the same thing – if more low-productivity workers shift their behaviour and re-enter the workforce than higher-productivity earners, participation goes up but productivity doesn’t. The high-productivity earners the government wants to entice back into the workforce are most likely to go back anyway, thanks to high pay and generous employer-provided enticements like flexible work and on-site childcare. Strike three.
Paid parental leave is not a concept without any value: improving women’s participation is one way to broaden the tax base over the medium-term to tackle coming fiscal problems, and it has other benefits too. But all the evidence suggests that this scheme is not the way to go about it. Nor do the alleged benefits to fertility and income upon retirement hold enough water to justify the scheme. The government should go back to the drawing board on this one.
Trisha Jha is a Policy Analyst at The Centre for Independent Studies.
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