Comparing the Paid Parental Leave schemes

Dr Luke Buckmaster, Social Policy

Key issue
The Coalition and the Greens have each proposed replacing the current national Paid Parental Leave (PPL) scheme with one that represents a substantial break with Australia’s existing framework for income support.

Origins of PPL in Australia

Prior to 2011, while Australia provided some financial assistance for costs associated with newborn or adopted children, it was one of only two Organisation for Economic Co-operation and Development (OECD) countries without a national PPL scheme.

There had been calls for many years for the introduction of such a scheme, particularly as women increasingly began to combine roles in the paid workforce with caring for children. While there had been an assumption that PPL should be the responsibility of employers, by the late 2000s, it was still the case that only around half of working women were covered by this type of arrangement. Further, casual, less skilled and lower paid employees were less likely than other workers to have access to private, employer-funded arrangements.

In 2008, the Rudd Government referred an inquiry into means of parental assistance to the Productivity Commission (PC). The PC subsequently recommended that the Government introduce a publicly-funded paid parental leave scheme. It was suggested that the scheme would meet a range of commonly agreed objectives, including:

generating child and maternal health and welfare benefits by increasing the time parents take away from work
promoting social goals, such as that having a child and taking time out for family reasons should be viewed by the community as part of the usual course of work and life for parents in the paid workforce
countering some of the workforce participation disincentives for new parents posed by the tax and welfare system and
increasing retention rates for business, with reduced training and recruitment costs.

Current PPL scheme

The current national PPL scheme, introduced by the Rudd Government in 2010, is paid to working parents of children born or adopted from 1 January 2011. To be eligible, persons must be primary carers and have incomes of $150,000 or less. They must also have worked at least one day a week for at least ten of the 13 months before the birth or adoption of the child.

Those eligible are paid for 18 weeks at the National Minimum Wage (currently $622.10 a week before tax). While PPL is paid from general taxation revenue, it is generally paid through the recipient’s employer. PPL is taxable income and does not include superannuation contributions.

From January 2013, Dad and Partner Pay (DPP), a separate two-week payment, paid at the National Minimum Wage, was made available to working fathers or partners.

In 2012–13, there were around 100,000 recipients of PPL and 17,000 recipients of DPP. In 2013–14, PPL was expected to cost $1.6 billion and DPP $72 million.

Proposals for change

The Coalition and the Greens have each proposed replacing the current scheme with ones which, generally speaking, are much more generous. Indeed, according to Peter Whiteford of the Crawford School of Public Policy, ‘the maximum level of assistance under the Coalition proposal will be one of the highest in the OECD’.

Support under both proposals would be extended to 26 weeks at replacement wage or National Minimum Wage (whichever is greater) up to a cap. The Coalition’s cap would be set at a salary of $150,000 per annum, the Greens at $100,000. Both schemes would:

pay superannuation
be administered by the Department of Human Services (rather than employers) and
be financed from a combination of a levy on companies with a taxable income above $5 million and general revenue.

Both schemes include a two-week component for fathers and partners paid at replacement wage/minimum wage, and this is capped in the same way as the main scheme. The Coalition’s option would be included in the 26 weeks in the main scheme, while the Greens’ version would be added to the 26 weeks. The Coalition scheme would require Commonwealth and State public sector employees to choose between their existing schemes or the proposed new government scheme.

The Greens’ scheme would commence on 1 July 2014 and cost around $3.8 billion per year. The Coalition’s scheme would commence on 1 July 2015 and cost around $5.7 billion per year.

PPL as a workplace entitlement

An argument often used in support of the more generous Coalition/Greens schemes is that PPL should be seen as a workplace entitlement. As such, PPL should be paid at a rate which reflects the income foregone by a mother who leaves the workplace to care for her baby. According to this position, the current scheme, by paying only the minimum wage treats PPL like a welfare payment.

On the other hand, the current scheme could be seen as a more targeted workplace entitlement that also seeks to retain space for private provision. The PC argued for payment at a flat rate on the grounds that it ‘would mean that the labour supply effects would be greatest for lower income, less skilled women—precisely those who are most responsive to wage subsidies and who are least likely to have privately negotiated paid parental leave’. Further, the PC found that generally, highly educated, well paid women already have a high level of attachment to the labour force and a high level of private provision. As such, full income replacement ‘would have few incremental labour supply benefits’.

PPL as a welfare payment

The designs of both the current and Coalition/Greens schemes contain elements that make them as much like an Australian Government welfare payment as they are workplace entitlements. For example, rather than being funded and run privately by employers or funded (as occurs in most OECD countries) through a social insurance scheme, they are:

fully or substantially funded from taxation revenue and
fully or substantially administered by the Department of Human Services.

Critics of both the Coalition and Greens schemes have tended to argue that PPL should better reflect the existing framework of Australia’s welfare payment system, based around targeting flat rates of payment at those most in need. As the Henry Tax Review noted, ‘the primary purpose of government assistance payments to individuals is to provide them with a minimum adequate standard of living’. A further value underlying the Australian system is that there should be incentives for private provision, with the benefit system seen more as a safety net.

In this sense, the current scheme is an attempt to use the existing principles of the income support system to promote parental leave pay as a workplace entitlement, but at the same time building on the existing framework of private provision. In contrast, the Coalition/Greens proposals take a more transformative, encompassing approach aimed at decisively achieving gender equity and workforce participation goals.