Tony Abbott once jokingly described himself as the “political love child of John Howard and Bronwyn Bishop”. This immaculate political conception is difficult to reconcile with the Prime Minister’s paid parental leave scheme, a policy that is Whitlamesque in its scope and expense.
The Coalition’s proposal could increase government expenditure on parental leave by more than $3 billion annually. The rate of payment would rise from the full-time minimum wage to the primary carer’s wage, up to a cap of $100,000, and the maximum leave period from 18 to 26 weeks.
These reforms take an existing, poorly targeted scheme and remove means-testing altogether. Worse, it institutes a family payment that gives the most money to the highest-income families. You have to go back a number of decades to find a precedent for such a policy.
In 1974, Gough Whitlam abolished university fees. In theory, this put a university education within the grasp of all school-leavers, regardless of their socio-economic background. In practice, the tax dollars of low-income earners were used to fund the university tuition of those who would go on to lucrative professional careers — many of whom came from affluent backgrounds.
It would be 15 years before the Hawke government restored equity and fiscal sustainability to higher education with the Higher Education Contributions Scheme. Under this scheme, the Australian government pays for university tuition on behalf of students, who repay a portion of the cost of their education only after their earnings exceed a minimum amount.
HECS ensured that students who could not afford upfront fees could still go to university, while the minimum repayment threshold and progressive repayment rates ensure only those students with a capacity to repay their liability need do so.
The Abbott government is on the cusp of repeating the mistakes of the Whitlam government, but it is not too late. The Prime Minister can still provide Australian parents with wage-replacement parental leave while avoiding the introduction of an expensive and highly inequitable family payment. In designing paid parental leave policy, Abbott should be more Hawke and less Whitlam.
Australia can realise the maternal health and child health and development benefits of 26 weeks of parental leave by ensuring no parent is prevented from taking leave due to financial constraints or for want of a paid workplace parental leave entitlement. This could be achieved through a program similar to HECS and the Higher Education Loans Program.
The government could make weekly payments to the parents of newborns up to the primary carer’s replacement wage for up to 26 weeks. Working parents with earnings of less than the full-time minimum wage could receive the full-time minimum wage.
Repaying the paid parental leave loan would be the joint responsibility of both parents. Each parent would make annual repayments according to a progressive schedule of repayment rates (as with HECS-HELP).
Parents with the greatest capacity to make repayments would make larger repayments than those on lower incomes, while parents with annual incomes of less than the full-time minimum wage need not make any repayments in those years.
Under a parental leave contributions scheme, loan repayments would not be burdensome for families. Modelling undertaken by the Centre for Independent Studies indicates that the loan repayments of a typical high-income family, where both parents are tertiary educated, would take four years for a one-child family and five years for a two-child family. Annual repayments would not exceed 5 per cent to 6 per cent of these families’ annual earnings.
For a typical low-income family, where both parents have less than a Year 12 education, a one-child family would take six years to pay off a loan, while a typical two-child family would take eight years — repayments would not exceed 4 per cent of these families’ annual earnings.
Such a scheme would not only provide equity for low-income families but would also achieve the gender-equity objective of statutory paid parental leave more effectively than the Coalition’s taxpayer funded scheme.
The progressivity of the repayment schedule ensures that the higher-income parent (generally male) makes the lion’s share of repayments in recognition of the value of the primary carer’s unpaid parenting over the leave period. The primary earner in a typical high-income family with one child would repay 95 per cent of the paid parental leave loan, while a primary earner in a low-income family would make 89 per cent of total repayments.
The primary benefit of such a scheme is that it would free women from having to finance their parental leave out of the wage discounts they incur in securing paid parental leave workplace entitlements.
It is not clear how Abbott’s taxpayer-funded scheme meets this objective. Many women, including those whose careers have been interrupted by childbirth, pay net tax. The Coalition’s scheme ensuresthatthe tax dollars of lower-income women will finance larger permanent income transfers to higher-income women.
Less poorly targeted paid parental leave expenditure means more money for tax cuts for working families or for alternative policies to help Australian women return to work after having a child.
Matthew Taylor is a research fellow at The Centre for Independent Studies, and author of Fairer Paid Parental Leave, available at cis.org.au.
Home > Commentary > Opinion > Loan scheme would solve paid parental leave
Loan scheme would solve paid parental leave
Tony Abbott once jokingly described himself as the “political love child of John Howard and Bronwyn Bishop”. This immaculate political conception is difficult to reconcile with the Prime Minister’s paid parental leave scheme, a policy that is Whitlamesque in its scope and expense.
The Coalition’s proposal could increase government expenditure on parental leave by more than $3 billion annually. The rate of payment would rise from the full-time minimum wage to the primary carer’s wage, up to a cap of $100,000, and the maximum leave period from 18 to 26 weeks.
These reforms take an existing, poorly targeted scheme and remove means-testing altogether. Worse, it institutes a family payment that gives the most money to the highest-income families. You have to go back a number of decades to find a precedent for such a policy.
In 1974, Gough Whitlam abolished university fees. In theory, this put a university education within the grasp of all school-leavers, regardless of their socio-economic background. In practice, the tax dollars of low-income earners were used to fund the university tuition of those who would go on to lucrative professional careers — many of whom came from affluent backgrounds.
It would be 15 years before the Hawke government restored equity and fiscal sustainability to higher education with the Higher Education Contributions Scheme. Under this scheme, the Australian government pays for university tuition on behalf of students, who repay a portion of the cost of their education only after their earnings exceed a minimum amount.
HECS ensured that students who could not afford upfront fees could still go to university, while the minimum repayment threshold and progressive repayment rates ensure only those students with a capacity to repay their liability need do so.
The Abbott government is on the cusp of repeating the mistakes of the Whitlam government, but it is not too late. The Prime Minister can still provide Australian parents with wage-replacement parental leave while avoiding the introduction of an expensive and highly inequitable family payment. In designing paid parental leave policy, Abbott should be more Hawke and less Whitlam.
Australia can realise the maternal health and child health and development benefits of 26 weeks of parental leave by ensuring no parent is prevented from taking leave due to financial constraints or for want of a paid workplace parental leave entitlement. This could be achieved through a program similar to HECS and the Higher Education Loans Program.
The government could make weekly payments to the parents of newborns up to the primary carer’s replacement wage for up to 26 weeks. Working parents with earnings of less than the full-time minimum wage could receive the full-time minimum wage.
Repaying the paid parental leave loan would be the joint responsibility of both parents. Each parent would make annual repayments according to a progressive schedule of repayment rates (as with HECS-HELP).
Parents with the greatest capacity to make repayments would make larger repayments than those on lower incomes, while parents with annual incomes of less than the full-time minimum wage need not make any repayments in those years.
Under a parental leave contributions scheme, loan repayments would not be burdensome for families. Modelling undertaken by the Centre for Independent Studies indicates that the loan repayments of a typical high-income family, where both parents are tertiary educated, would take four years for a one-child family and five years for a two-child family. Annual repayments would not exceed 5 per cent to 6 per cent of these families’ annual earnings.
For a typical low-income family, where both parents have less than a Year 12 education, a one-child family would take six years to pay off a loan, while a typical two-child family would take eight years — repayments would not exceed 4 per cent of these families’ annual earnings.
Such a scheme would not only provide equity for low-income families but would also achieve the gender-equity objective of statutory paid parental leave more effectively than the Coalition’s taxpayer funded scheme.
The progressivity of the repayment schedule ensures that the higher-income parent (generally male) makes the lion’s share of repayments in recognition of the value of the primary carer’s unpaid parenting over the leave period. The primary earner in a typical high-income family with one child would repay 95 per cent of the paid parental leave loan, while a primary earner in a low-income family would make 89 per cent of total repayments.
The primary benefit of such a scheme is that it would free women from having to finance their parental leave out of the wage discounts they incur in securing paid parental leave workplace entitlements.
It is not clear how Abbott’s taxpayer-funded scheme meets this objective. Many women, including those whose careers have been interrupted by childbirth, pay net tax. The Coalition’s scheme ensuresthatthe tax dollars of lower-income women will finance larger permanent income transfers to higher-income women.
Less poorly targeted paid parental leave expenditure means more money for tax cuts for working families or for alternative policies to help Australian women return to work after having a child.
Matthew Taylor is a research fellow at The Centre for Independent Studies, and author of Fairer Paid Parental Leave, available at cis.org.au.
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