Thursday, May 9, 2013

The calibre of Abbott's paid parental leave: It's not the inequity, it's the economics

Many people have criticised the Coalition's paid parental leave (PPL) [PDF] scheme as entrenching inequity, however, since Coalition backbencher (and IPA fan) Alex Hawke, began questioning the opposition's paid parental leave (PPL) scheme from a neo-liberal economic prospective, several prominent feminists have come out in support of the scheme.

Eva Cox has asserted that:
"Interestingly, Tony Abbott’s pitch for his version of paid parental leave is closer to the feminist angle than the health or welfare justifications. He has designed a payment that meets so many traditional feminist demands."
This is untrue and is based on a fundamental misunderstanding of the economics of the Coalition's policy.

In this post I want to firstly, address the fallacy behind Cox's defence of the policy and secondly, address how a PPL scheme could meet Cox's criteria.

The two policies

The table below outlines the basic structure of both policies:

Government SchemeOpposition Scheme
Paid leave18 weeks (primary caregiver) at minimum wage26 weeks (Mothers only) at equivalent wage capped at $75,000
Include superannuation:NoYes
Administered by:Centrelink (DHS)Family Assistance Office (DHS)
Paymaster:EmployerFamily Assistance Office
Paternity leave:2 weeks at minimum wage2 weeks at full wage
Same-sex Partner leave:same as paternity leaveunclear, but policy only mentions fathers
Funding:general revenue1.5% levy on large businesses

Cox's Argument

Cox makes three main points in praise of the Coalition Policy:
  1. It represents 26 weeks of leave at equivalent pay which differentiates PPL from a welfare payment because of the attachment to the rate of pay;
  2. it normalises PPL as a workplace right the same as personal leave or annual leave; and
  3. it's paid for by a levy on big business so "business benefits from not having to make the payments out of individual profits." (Coalition PPL policy)
These elements all look self evident from a superficial analysis of  the policy, however a deeper analysis show each argument as inherently flawed.

Why Cox's assertion is flawed

Pay equivalence certainly seems to differentiate the Coalition's policy from welfare if it is compared against the Government's scheme on pure payment rates. However if the policy is analysed more deeply its flaws become apparent.

Cox accuses the Government's scheme of emulating a welfare payment not only on the basis of the rate, but also because it is administered by Centrelink. This assertion is extremely misleading and belies a misunderstanding of the way the government scheme is administered. The Government's PPL scheme is administered by Centrelink, however, payments are made to the employer to be paid to the employee - keeping the nexus between PPL and employment.

However the Coalition's plan is to:
 "be paid and administered by the Family Assistance Office and will not impose an unnecessary administrative burden on employers, unlike Labor’s scheme"
 Which is a welfare payment, administered by a welfare agency paid directly to the welfare.

The amount is not the issue as Cox asserts, the mechanism of payment is, which brings me to Cox's next point.

Cox argues that the Coalition's policy normalises PPL as a workplace right similar to personal or annual leave. In fact, the economics of the policy actually bring it much further from a workplace right than the Government's scheme.

Workplace rights stem from the relationship between the employer and employee - not to rates of pay - annual leave is a right regardless of how much is paid. Annual leave is a mandated part of the payment package that every employee receives. The government does not pay the employee for their annual leave, the employer continues paying a wage while the employee is on leave.

The Coalition's PPL breaks any nexus between the right and the payment. The payment for the right becomes the Government's responsibility, not one borne by the employer as other rights are. It is the very definition of government funded welfare.

Which brings me to the third point - the burden on business.

The Government's PPL scheme is paid out by the employer, firstly to try and keep the nexus between the payment and the right, and secondly, to try to encourage business to "top up" the basic payment to become an "employer of choice".

Although this does create an administrative burden on business, the benefits of keeping this nexus of payment far outweigh the burden. Once the scheme becomes embedded, the burden will lessen as it becomes part of normal business processes, but the benefits will increase as the PPL right becomes normalised. Furthermore, the costs of this administrative burden are likely to have far less price impact than a 1.5% levy.

Many large businesses already have generous PPL schemes designed to attract talented employees to their business. Levying a tax on business to pay for PPL is an active disincentive for business to offer PPL rights (as part of their enterprise agreement or contract) to their employees as businesses will see that they've already paid for PPL thought the levy.

The PPL levy moves the responsibility for PPL from business as a workplace right to government as a welfare payment. Targeted government spending in this manner deliberately crowds out the private sector. 

The Coalition's PPL scheme cannot meet each of the elements on which Cox praises the policy. The Coalition's scheme is the very epitome of welfare which Cox argues against.

The Coalition's policy:
  1. Is paid by the government like welfare
  2. Has no connection to the employer like welfare
  3. Is paid as a tax that acts as a disincentive for the private sector to fund the right (like personal or annual leave).

For all its flaws, the Government's scheme at least keeps the nexus between the right and the payment and does not mimic the welfare model as the Coalition's policy does.

How to fix the Government's scheme

The economic conditions for the payment of PPL at the employee's wage level need to be provided by business to truly divorce the PPL payment from welfare. Cox is wrong to assert that the mere connection between the right and the payment rate is enough. The connection needs to be between the paymaster and the payee to truly entrench PPL as a employment right in the minds of business as this is how other rights (such as annual leave) operate.

In the same way that leave conditions are used by business to attract the best employees, PPL conditions should be no different. In fact, many businesses already offer PPL conditions as an incentive to employment.

While government should provide a basic PPL scheme as a base level (to at least provide a base level of  pay to enable women to have the choice to have children), business should be encouraged to provide PPL over and above this rate. This could be done as a "return to work" subsidy or an employment subsidy for non-ongoing PPL leave positions to fill in for the employee on leave,while keeping the current right of return.

Keeping the nexus between PPL and employment is the only way to change workplace culture in Australia and this nexus includes business' close involvement with the scheme.

The Coalition's scheme divorces business from the scheme by shifting the expenditure from employment to tax. The Government's scheme at least keeps the connection as the employer remains the paymaster.

The Coalition's policy is just middle-class welfare dressed up as a female-friendly policy and although the Government's policy lacks the incentivisation for business - it is further away from welfare than Cox asserts.

Cox has been fooled by the Coalition's simplistic scheme - but the problem is not with the inequity (as Cox points out) but with the economics (which Cox's arguments do not address).

The Coalition's scheme is welfare, and like other welfare payments can be reduced - particularly since the Coalition's scheme is likely to be extremely expensive. The Government's scheme begins the process of embedding PPL as a workplace right and as business begins to "top up" the scheme (particularly if the Government offers incentives to do so) it becomes less likely to be removed.

Even though on pure payment amounts the Coalition's scheme looks more attractive, it does none of the things that Cox praises it for - all it does is entrench PPL as welfare, and extremely expensive middle-class welfare at that.