Paid parental leave plan ignores economics of well-functioning families

The federal government’s proposal to amend paid parental leave may result in short term fiscal gains, but overlooks the fact that well-functioning families provide long-term economic and social benefits to the community.

The paid parental leave scheme was designed to enhance the well-being of families by providing a strong foundation in the months following the birth of a child. The 2016 Bill limits the entitlements of women who receive some level of support from their employer by restricting the Commonwealth support to a top-up payment that would be a maximum of 18 weeks at the minimum wage.

The current scheme entitles the primary carer to claim up to 18 weeks at minimum wage, of which two weeks can be claimed by the carer’s partner (Dad or Partner Pay). Women earning more than A$150,000 per annum are not eligible for the government scheme. The minimum provisions of the National Employment Standards further allow a parent to take up to 12 months of unpaid parental leave.

This original scheme was not designed as a top-up scheme, but to complement payments available under existing employment arrangements. It recognised that some new parents had rights under their existing employment agreements, so the policy was explicit that the parental leave pay can be received in addition to other entitlements including employer-provided parental leave.

Before fiddling with the design of paid parental Leave, we need to be clear about the purpose of the policy. Family policies, including child care, early education, paid parental leave and family benefits are not just about economics and productivity: they are also about ensuring children get a good start in life. The broad reach of this policy is set out by the diverse range of women’s groups who have signed the call to protect paid parental leave.

Health experts are unanimous about the benefits of parental bonding in the first weeks of life. The International Labour Organisation recommends mothers be entitled to at least 18 weeks of leave, on the equivalent of their normal rate of pay.

The World Health Organisation further recommends that infants should be breastfed for the first six months of life, with supplementary breastfeeding until at least the age of two. These recommendations were critical in the design of the 2010 paid parental leave policy, with the Productivity Commission noting that:

a leave period of 18 weeks of postnatal leave (as proposed in the draft report), combined with adequate payment levels appropriately balances the above considerations. Such a duration would provide the overwhelming majority of parents, more than 90 per cent according to preliminary estimates, the option of taking at least 26 weeks of leave without undue financial stress.

The current proposals will meet the 18 week benchmark, but payments are limited to the basic wage. This is about half of average weekly earnings for women. If paid parental leave cannot be combined with other leave entitlements, the amount the parent receives will be inadequate to give many parents the option of taking the recommended 26 weeks of leave to bond with and care for the newborn baby.

WGEA data shows that in 2015, less than half of employers (48.2%) provided paid parental leave. Of those, 80.9% offered full pay and 8.6% topped up the government scheme to full pay. The average period of paid leave was 10.2 weeks.

The most highly feminised industries of health, childcare and primary education are more likely to provide leave on full pay, but the duration of the leave remains around the average. This is a long way from the 26 weeks that the WHO and the Productivity Commission recommended as being in the best interests of the child.

Under the current arrangements, a new parent who is entitled to claim 10 weeks on full pay from their employer would be entitled to dad and partner pay of two weeks and 16 weeks of Parental Leave Pay. This would enable the family to get to 26 weeks, although they would need to budget carefully to get through this period.

Under the proposed changes, the family would be restricted to eight weeks of parental leave pay following the employer-funded leave. This leaves the family with the choice of either returning to work or remaining on unpaid parental leave for the balance of the recommended 26 weeks.

When deciding whether to return to work, other practical issues must be considered.

If adequate breastfeeding facilities are available in the workplace, 18 weeks would meet the ILO standards, but the WGEA data also shows that less than half of employers (45.7%) provide private breastfeeding facilities. If this can be addressed, the family will then need to find a place in a childcare centre for a child under six months old. The cost of childcare takes a further chunk out of the family earnings.

Paid parental leave policies need to consider a range of objectives. The economic objectives include encouraging women to remain active participants in the workforce. But the overriding objective is to improve the well-being of families, including the health, social and cognitive development of the child.