Finance Finance News Debate rages over Paid Parental Leave

Debate rages over Paid Parental Leave

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At a time when the Liberal government is working to bring the budget back into line, Prime Minister Tony Abbott is determined make his Paid Parental Leave Scheme a reality. Some are cheering for it, others are not.

While Mr Abbott and his front bench stress the need to drive down the budget deficit, the new government is preparing to legislate a new leave which is more generous than the current arrangements.

To bring the budget under control, the government set up the National Commission of Audit, is tightening eligibility for unemployment benefits, and refusing bailouts for the struggling manufacturing industry.

Mr Abbott has long been a critic of the mining tax as a restraint on growth and productivity, and will ask large companies to foot the bill of this scheme in the form of a 1.5 per cent levy.

According to Professor Peter Whiteford at The Australian National University, the new paid parental leave scheme would be “one of the most generous” in the developed world, thanks to a very high salary cap.

The 26-week paid leave on offer will vary depending on the mother’s annual wage. So a female executive on $150,000 per year could get up to a total of $75,000 from the government, whereas an expecting mother employed at a struggling small business will get much less.

PM Tony Abbott is pushing ahead with PPL despite internal opposition.
PM Tony Abbott is pushing ahead with PPL despite internal opposition. Photo: AAP

The current scheme, introduced by Labor in 2010, is much less generous. It pays the minimum wage to everyone eligible, regardless of income.

“The previous government scheme is actually highly redistributed to part time workers and the low paid,” says Professor Whiteford, who has written extensively on the topic in his research position in public policy.

“We’re going from a scheme that looks a lot like the rest of our social security system to one that’s very different and much more generous.”

This most divisive of Liberal Party policies (which has even earned the ire of some backbenchers in Mr Abbott’s own party) faces an uphill battle in the Senate, although the task may become more achievable when the new Senators take their seats on 1 July.

What about the working women doing it tough?

Not only does Mr Abbott’s scheme prioritise working mothers over unemployed mothers, critics have argued that it disadvantages hard-working, low-paid women who want to have children.

Roger Mendelson, CEO of Prushka Fast Debt Recovery, says many employees at the smaller businesses he works with will be much worse off.

“Their employees are going to be more on $35,000 to $40,000 per year,” he says, which is close to the minimum wage – the lowest amount payable under the scheme.

But Rosemarie Dentesano, a successful talent management executive a multinational company and mother of a teenaged son, argues the scheme “makes sense”.

According to her, “A person creates a particular lifestyle and has particular financial commitments based on their earning capacity”.

Ms Dentesano “absolutely” wishes Prime Minister Tony Abbott’s paid leave scheme was in place back when she took maternity leave 15 years ago.

“I returned to work much earlier than I wanted to, and a lot of that was around just financial commitments,” she says. “It would have taken some of the pressure off.”

But she concedes that “if I was footing the bill, maybe I’d have a different view”.

For well-paid business leaders like Ms Dentesano, the scheme would be a huge windfall. And it is on this point that much of the criticism is centered.

Who will pay for the scheme?

The scheme will be funded by a 1.5 per cent levy on companies with an annual post-tax turnover of more than $5 million.

Mr Mendelson thinks that smaller businesses will be happy with this funding model because “they get the benefit without having to pay for it”.

Businesses won’t even have to administer the scheme, with payments coming direct from Centrelink.

But Mr Mendelson is worried about the spill over effects for investors and super fund members.

“Ultimately a levy on a large public company means it will pay less dividends and the shares in public companies,” he says.

“When it comes down to it, [most shares] are held in either public super funds or private super funds and therefore in effect it’s being borne by the owners of those super funds.”

The government has even floated the idea of cutting tax breaks for investors, in the form of reduced franking credits.

“Ultimately, you could say that all of us will pay, in one way or another,” warns Professor Whiteford, suggesting that companies will pass on the cost to consumers through price hikes and scrape it back on fewer pay increases and other cuts to workers.

Will it ever happen?

The political obstacles are many, but Mr Abbott is continuing to push for what seems to be his pet project, but it looks unlikely to pass without some kind of concessions from the Prime Minister.

“I think there is going to be [some kind of scheme], Abbott’s or the Greens scheme or some compromise between the two of them,” Professor Whiteford admits.

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