Opinion & Commentary
Woo mums and big end of town
Tony Abbott’s notorious declaration when John Howard was in power that paid maternity leave would only be introduced ‘over this government’s dead body’ has come back to bite him. The enthusiasm with which the Opposition Leader has now embraced the cause of working mothers shows just how keen he is to shed his image as a patriarchal conservative and win the support of the female voters of middle Australia.
If the Coalition forms the next federal government, prime minister Abbott plans to introduce six months’ paid parental leave. New mothers earning up to $150,000 a year would be paid at the level of their actual wage.
To fund this extravagant scheme, Abbott has flagged a 1.7% levy on the company tax paid by larger businesses.
The Rudd government’s comparatively modest proposal is 18 weeks of parental leave paid at the minimum wage and funded from general revenue.
Parental leave advocates have cautiously applauded Abbott’s stance. They are wary of his political motives but happy for their cause to become the subject of an election year bidding war.
But the details of Abbott’s proposal, which he outlined at an International Women’s Day lunch on Monday, are ringing alarm bells.
The Business Council of Australia was quick to reject Abbott’s plan. Its members will bear the cost of Abbott’s largesse, so it’s not difficult to see why. According to the Equal Opportunity for Women in the Workplace Agency, about half of Australia’s large businesses already provide paid parental leave for their staff.
They do so because it gives them a competitive edge when recruiting skilled staff in high demand. Under Abbott’s plan, these companies will be compelled to subsidise their competitors to do the same.
The Australian Chamber of Commerce and Industry, which represents small as well as large businesses, was also quick to condemn Abbott’s policy. Even though many of its members will be exempt from the levy, which kicks in only when a company’s profits hit the $5 million mark, they will be wary of setting a precedent in which employers are compelled to pay for employees’ social security payments.
Unlike some European countries, Australia does not have an extensive tradition of requiring employers to directly contribute to the welfare state (outside superannuation). Payments to families and other payments such as unemployment benefits are funded instead through taxes by the government. By keeping employers and the welfare state separate, this system places fewer administrative and financial burdens on business. This boosts employment by lowering the cost of employing new staff.
A danger is that Abbott’s 1.7% levy will force business to hire fewer staff or cut the wages of existing staff, or raise prices.
To call the new charge on businesses a levy is really just a fancy way of saying it’s a new tax on the big end of town.
This may play well in marginal electorates, but it is an odd policy for a party whose website lists reducing the ‘punishing disincentives of burdensome taxes’ as one of its core beliefs.
A key difference between Australia and the big-taxing, big-spending European welfare states is that we tightly target payments at lower income households. This system has some drawbacks: the gradual withdrawal of benefits means there is often a disincentive for families to increase their income through work, for fear of losing some of their payments.
But an advantage of this system is that it is substantially cheaper. Australia can provide some of the most generous benefits, yet still have much lower tax rates – and much less churn – than those countries that provide universal benefits.
Yet by awarding the highest payments to the highest earning households, Abbott’s proposal turns this principle on its head and makes the exercise a lot more expensive in the process.
In its extensive review of paid parental leave, released in February last year, the Productivity Commission rejected proposals to fund any scheme through a levy on business on the grounds that it would essentially be a ‘hypothecated payroll tax’; that is, an increase in payroll tax to cover parental leave. Apart from being administratively complex, the commission argued, such a move would run counter to the principle of tax simplification that has been embraced by both sides of politics.
In an election year, it is no surprise that both sides are trying to outdo each other in handing out new and popular entitlements such as paid maternity leave to working families.
Under the Howard government, yearly increases in family payments became the norm. Family tax benefits A and B, the baby bonus and childcare benefits were introduced, expanded or increased under the Coalition. These payments now cost more than $20 billion a year.
On a per capita basis, Australia is among the most generous countries in the world when it comes to providing financial support for families with children. Abbott’s proposal, which he has costed at $2.7bn a year, will lift spending on families into the stratosphere.
It also will add to the dizzying complexity of the existing confusing system of payments.
A more sensible but far less headline-grabbing strategy would be to reform from the ground up the present system of family payments.
Some payments seem designed to encourage mums back into the workforce, while others provide an incentive to stay home.
This is a confused and inefficient way of providing financial support to families. Adding paid parental leave to the mix adds not just to the cost but to the complexity. Instead, paid parental leave could be integrated into a simplified system of family support rather than stuck on top of the existing byzantine system.
A plan for reform, rather than an election year handout, could be the policy that Abbott needs to win support from the big end of town and young mums.
Jessica Brown is a Policy Analyst at The Centre for Independent Studies. Her report Million-Dollar Babies: Paid Parental Leave and Family Policy Reform was published by the CIS.
