Why Abbott’s parental leave scheme is a big subsidy for small business: Kohler

The Coalition’s paid parental leave idea of six months at full pay is a brilliant and possibly devastating piece of politics, and although the polls don’t mention it as a key reason Tony Abbott has clawed back Labor’s lead, I wouldn’t mind betting it is.

And it wasn’t hurt by the leak that Julia Gillard opposed Labor’s paid parental plan in Cabinet, either.

Whether the Abbott scheme is good economics or public administration is another matter, of course, but as well as being good politics it’s not bad demographics.

It looks like, and to some extent is, designed to counter Gillard’s appeal to women, but it’s also a massive subsidy to small businesses – those making less than $5 million in taxable income. That’s about 745,000 voters and their families and employees. The owners and managers of the 3000 or so that make more than $5 million are unlikely to vote Labor anyway.

Many big businesses offer paid maternity leave at full pay already but most small businesses can’t afford it and lose staff to their big competitors as a result. Under the Coalition’s scheme they’ll be able to keep their female workers on the payroll at no cost, subsidised by their competitors.

And after yesterday’s latest iteration of the scheme it is, politically speaking, marvellously fudged. Abbott is playing more ducks and drakes with it than a poultry farmer.

Parental leave at full pay won’t start for 18 months after the election, during which time a Coalition government would use Labor’s scheme of 18 weeks at the minimum federal wage.

The levy to pay for it has been reduced to 1.5%, from 1.7%, and the Coalition leader now says that is temporary, without saying when it might be removed. And if you believe it’s temporary, you’d believe anything.

What’s more the “temporary” levy is to be offset by an equal cut in the company tax rate that would start a year after the parental leave scheme and big business levy starts.

And, naturally enough, it cancels out the baby bonus, which was a centrepiece of the Coalition’s 2001 election campaign. That was pretty smart politics too: it had a big impact and hardly cost anything for years.

Last year the cost of the baby bonus had climbed to $1.16 billion and is due to keep rising as the bonus increases from $4000 to $5000. The cost of the Coalition’s paid parental leave policy has been put at $3.3 billion, but it’s not clear whether this is gross or net – that is, whether that’s before or after the savings from the baby bonus. I wouldn’t be betting it’s before, so that cancelling the baby bonus is why the big business levy can be called temporary.

The Liberal party’s parental leave announcement said the policy would bring Australia into line with France, Germany, Russia, Austria, Denmark, Serbia, Singapore, Slovenia, Estonia, Greece, Mexico, Morocco, Luxembourg, Poland, Norway, Portugal, Switzerland and Spain.

But in truth only Russia, Denmark and Norway are as generous as the Abbott plan. The others do provide parental leave on full pay, but for an average of around 12-16 weeks, not 26 weeks.

Mind you there are a few extraordinarily generous schemes around the world, aimed primarily at maintaining declining birth rates.

Russia for example, pays 100% salary for up to 194 days before birth, and then up to 6000 roubles, or 100% for 18 months, for 18 months thereafter. Russia is broke, by the way.

Most African countries pay 14 weeks at 100%, which is perhaps surprising since they don’t need to get their birth rate up – although you’d want to see an audit of who’s actually getting any money.

China theoretically has 90 days at 100%, so does Korea, while Japan has 14 weeks at 60%. United Nations workers get 16 weeks at 100%.

No one, as far as I can see, does it at the minimum wage, as Labor proposes.

This article first appeared on Business Spectator