In recent months, a number of Labor frontbenchers have contrasted the Treasurer’s statements about how ‘the age of entitlement is over‘ with the Abbott government’s proposed Paid Parental Leave (PPL) policy. Last Sunday, Joe Hockey emphasised the labour force participation objective of the scheme stating it is ‘about getting people back to work so they can pay for the pensions of tomorrow.‘
Currently PPL provides the equivalent of the full-time minimum wage to the primary carer of a newborn for up to 18 weeks provided they meet a fairly light work test. To be eligible for PPL, a parent must have worked a little over one day a week for the preceding 10 months.
The income test is also light, allowing any primary carer with an income of less than $150,000 in the financial year prior to their claim. For parents who take the full 18 weeks, the payment amounts to $11,197.80.
Under the Abbott government’s proposed scheme, the principal carer would be paid at their full wage for a period of up to 26 weeks: A parent with an annual income of $150,000 would be eligible for a payment of $75,000 – almost seven times the current amount. Those on higher incomes would also receive this payment.
If the government’s proposal is going to increase the life-time labour force participation of parents, it will have to increase it substantially to fund expenditure on PPL – let alone the age pension.
According to the Parliamentary Budget Office, the proposed scheme will cost $4.1 billion in its first full financial year of operation – considerably more than the $1.4 billion spent on PPL in 2012-13.
The architects of the current scheme were clear about how they thought the labour force participation of parents would be improved by PPL. According to the Productivity Commission, ‘The minimum wage…would create good incentives to work for lower income females, since the payment is significantly more than the value of income support for women working in the unpaid sector.‘
In the Commission’s view, PPL would entice women who would not otherwise work prior to the birth of their first child to enter the labour force to meet the work test. The same incentives would apply for women between the birth of their first and second child. Recent changes however dull this incentive by allowing parents to count a PPL period as ‘work’ towards the work test.
There is little evidence to suggest that paying high income parents at their full wages will elicit a large increase in their life-time labour force participation.
Research by the Melbourne Institute found that employment prior to birth was the primary determinant of whether women returned to work. Another study suggests women on higher wages are those who return to work sooner.
The government’s proposal may be successful in getting parents to spend more time with their children in the early months of their lives. To suggest it will fund the age pension payments of the future is a bit of a stretch.
Matthew Taylor is a Research Fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > Paid Parental Leave: Is it really going to pay for the age pension?
Paid Parental Leave: Is it really going to pay for the age pension?
Currently PPL provides the equivalent of the full-time minimum wage to the primary carer of a newborn for up to 18 weeks provided they meet a fairly light work test. To be eligible for PPL, a parent must have worked a little over one day a week for the preceding 10 months.
The income test is also light, allowing any primary carer with an income of less than $150,000 in the financial year prior to their claim. For parents who take the full 18 weeks, the payment amounts to $11,197.80.
Under the Abbott government’s proposed scheme, the principal carer would be paid at their full wage for a period of up to 26 weeks: A parent with an annual income of $150,000 would be eligible for a payment of $75,000 – almost seven times the current amount. Those on higher incomes would also receive this payment.
If the government’s proposal is going to increase the life-time labour force participation of parents, it will have to increase it substantially to fund expenditure on PPL – let alone the age pension.
According to the Parliamentary Budget Office, the proposed scheme will cost $4.1 billion in its first full financial year of operation – considerably more than the $1.4 billion spent on PPL in 2012-13.
The architects of the current scheme were clear about how they thought the labour force participation of parents would be improved by PPL. According to the Productivity Commission, ‘The minimum wage…would create good incentives to work for lower income females, since the payment is significantly more than the value of income support for women working in the unpaid sector.‘
In the Commission’s view, PPL would entice women who would not otherwise work prior to the birth of their first child to enter the labour force to meet the work test. The same incentives would apply for women between the birth of their first and second child. Recent changes however dull this incentive by allowing parents to count a PPL period as ‘work’ towards the work test.
There is little evidence to suggest that paying high income parents at their full wages will elicit a large increase in their life-time labour force participation.
Research by the Melbourne Institute found that employment prior to birth was the primary determinant of whether women returned to work. Another study suggests women on higher wages are those who return to work sooner.
The government’s proposal may be successful in getting parents to spend more time with their children in the early months of their lives. To suggest it will fund the age pension payments of the future is a bit of a stretch.
Matthew Taylor is a Research Fellow at The Centre for Independent Studies.
• Subscribe
Subscribe now and stay in the loop with our giving appeals, event alerts, newsletters and research updates.
We are always pleased to hear from you. If you have any questions or feedback, please contact us here: