Opinion & Commentary
Who’s paying for babies?
The Productivity Commission is currently examining models for a national paid maternity leave scheme. Current payments, including the Baby Bonus, can be transformed into a short, universal, payment (such as 14 weeks paid at the federal minimum wage) without requiring significant new public spending. This ensures that all new mothers get the opportunity to spend at least the first few months of their baby’s life as a full-time carer.
Beyond this ‘minimalist’ payment is where it becomes more complicated. Should employers be required to pay? Should the taxpayer subsidize 6 or even 12 months leave? Or should we just leave it there, accepting that some mums will have to go back to work early? These three options all present problems.
Requiring employers to pay is fraught with danger. Businesses exist to make profits, and the extra wage costs associated with compulsory maternity leave payments may threaten these profits. Business might compensate by either cutting the wages of women, or choosing to hire less women altogether. A levy across all businesses could result in lower wages across the board or higher prices for consumers.
Extending the taxpayer subsidy is also tricky. Australia already has a generous support system for families, spending well above the OECD average. By means testing the Baby Bonus and Family Tax Benefit B earlier this year, the government signalled that it wanted to cut down on so-called ‘middle class welfare’. Should people (often on above average incomes) have their mortgages subsidized by the taxpayer simply because they decide to have a baby?
Sticking with the status quo might also be problematic. Current research about parental care for babies is mixed. Some studies show that childcare has a positive effect on kids, and some show it has a negative effect. However, it does seem that the negatives outweigh the positives for very young babies. It’s a choice best left up to individual parents, but giving them the financial breathing space to make this decision a bit more freely seems like a good idea.
A good compromise is a mechanism which helps parents self-fund their maternity (or paternity) leave. What most parents need is a tool for lifetime income smoothing, not a taxpayer subsidy. They need to be able to draw on past, or future, earnings to ensure they have enough to pay the bills when trying to survive on only one income.
‘Parental Leave Saver Accounts’ could allow parents to save for their parental leave, rolling unused
savings into super or another asset. The infrastructure for this system already exists, evident in ‘First Home Saver Accounts’ and superannuation. Savings accounts provide for people’s social security requirements in countries like the US, UK, and Singapore. Matched savings or tax breaks could provide an incentive for low-income families to participate.
If families had not saved, or if their savings ran out, they could apply for an income-contingent
loan. Repayments would increase as family income increases, ensuring that loan repayments did not
have a significant negative impact on household budgets.
These policies would still involve an implicit government subsidy, but the government could choose to limit the cost to taxpayers by directing tax breaks and subsidies at the lowest income families.
Self funded parental leave gives all families the opportunity to provide one-on-one parental care for their newborn, regardless of their income. It also recognises that many parents don’t need a subsidy; they just need to smooth out some of the lumps and bumps in their lifetime earnings. Beyond a short and universal maternity leave payment, introducing self funded parental leave represents a fair compromise in the impassioned ‘who pays?’ debate.
Jessica Brown is a Policy Analyst at the Centre for Independent Studies, her report ‘Baby Steps Towards Self-funded Parental Leave was published by CIS in August.
