CEDA today released a paper that challenges the Federal Government to think differently about the length and funding mechanisms for paid parental leave.
In a paper commissioned for CEDA, entitled Sharing the Costs of Parental Leave: Paid parental leave and income contingent loans, Professor Bruce Chapman, Tim Higgins and Lynette Lin of the ANU propose a solution for Australia to fund an extended period of paid parental leave.
CEDA's Chief Executive David Byers said the paper put forward a proposal for how Australia could provide up to nine months paid parental leave.
"Most of the current debate centres around consideration of proposals for a much shorter period of paid maternity leave of 14 weeks, funded by the government," Mr Byers said.
"A longer period of parental leave would provide a better opportunity for maintaining a parent’s longer-term attachment to the workforce.
"It would also improve parents’ ability to better fund their retirement, lower the incentive to resign from work, and increase the likelihood that parents would return to work with the same employer," he said.
The paper proposes a new funding mechanism – a HECS-style income contingent loan – as an optional addition to a paid parental leave system.
It examines the financial consequences under which the government is lender and parents are solely responsible for repayment.
While not examining the extent to which the total costs of paid parental leave should be borne by taxpayers, employers and individuals, the paper does raise the prospect of employers contributing in some form to the funding arrangements.
In essence, the paper puts forward a "user-pays" approach, presenting simulations of revenue streams in different households in which income contingent loans are used to help finance paid parental leave.
The analysis suggests that such a system would introduce choice and flexibility without requiring major contributions from taxpayers.
Repayment of the loan would only be required when households are in a position to pay.
For many parents with existing mortgage obligations and limited household income while they care for children at home, borrowing to finance parental leave may be problematic or impossible.
Under an income contingent loan for paid parental leave, the debt repayment obligation is transferred to a time in life when the family’s household incomes are relatively higher.
The paper also estimates that, for the majority of potential borrowers under this scheme, the taxpayer subsidies would be quite small.
Mr Byers said, "It is often pointed out by proponents of paid parental leave that it is only Australia and the United States of all industrialized countries in which there is no legislative requirement or taxpayer subsidy for paid parental leave".
"Income contingent loans for paid parental leave could provide an important mechanism to encourage mothers not to resume paid employment too soon after the birth of their child.
"At the same time, employers benefit as they are likely to retain skilled employees. The economy also benefits from a potentially larger and healthier workforce.
"CEDA therefore considers there is a case for contribution from all three parties – government, parents and employers – as all three benefit from paid parental leave.
"This out of the square proposal should be considered by the government, as it provides a new perspective on current parental leave arrangements.
"If we are really serious about policies that adjust for our ageing population, promote the early development of children, and support families in balancing work and home responsibilities, then we really should look hard at income contingent loans for parental leave," he said.
For further information please contact:
John Harris
Corporate Relations Director
Phone 03 9652 8415
Email info@ceda.com.au
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