The Coalition's Paid Parental Leave black hole

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There is a gaping black hole in the budget for the Coalition's Paid Parental Leave (PPL) scheme, says Sarah Brasch, who has crunched the numbers.
Joe 'Sweat me a river' Hockey, during today's Coalition's press conference to release their costings. Was his undisclosed PPL black-hole one of the reasons for being so obviously uncomfortable. (Image via ‏@croquetcrazy)

Well, it looks like there could be a gaping hole in the Coalition’s figures for their extravagant Paid Parental Leave (PPL) scheme.

The official costing of The Greens scheme, released by the Parliamentary Budget Office (PBO) on 20 August, tells us just about everything we want to know about the Coalition's proposal, because both schemes are identical except for the salary cut-off point: $100,000 for The Greens and $150,000 for the Coalition.

Tony Abbott says his scheme will cost $5.5bn a year fully paid for by additional revenue ‒ including the company levy ‒ and savings. The current ALP scheme is estimated to cost around $1.95bn a year, all taxpayer funded, in 2015-16 when the Coalition’s payments are due to start.

However, the Coalition did release some of its PPL sums last week so it’s worth taking a stroll through them.

The scheme, starting on 1 July 2015, is claimed by the Coalition to cost $9.8bn (gross cost including administration) over two years — that is, in 2015-16 and 2016-17.

Firstly, it takes away savings from the existing ALP scheme already in the Budget and funded.  That removes $3.7bn according to the Coalition. But it has underdone its main offtake by $250m through rounding down and the omission of the Dad and Partner scheme funds. That, plus the existing ALP payments, makes $3.95bn.

Then the Coalition starts to peel away the offsets — money that can be readily found to cover the balance of $6.1bn (this figure also in its PPL policy document released on 18 August, sourced from a preliminary PBO costing) in 2015-16 and 2016-17.

There's also $1.2bn to be saved through accounting magic.

This amount is to come from existing payments made by the Federal Government to its own staff for parental leave and those made by State/Territory governments – all taxpayer funded ‒ when their employees choose the new universal scheme. The money will need to be identified in State and Territory budgets and sent to Canberra — a very odd arrangement. WA has already said "no".

Another $1.6bn is to come from consequential adjustments to Government spending ‒ for example, savings on means-tested family assistance payments because some recipients are earning more ‒ and from increased revenue, almost certainly higher tax receipts, also to come from people receiving PPL payments.

According to the Coalition, this leaves $3.3bn to be found over the first two years.

The Coalition’s source for the remainder is the fully offsetting levy on companies with taxable income (note) over $5m said to raise $4.4bn over two years, a profit of $1.1bn to go into the bottom line of their projected $31bn savings.

And so it should raise $4.4bn over two years, according to the PBO, if we look at the official costing done for The Greens ... when the scheme is fully operational.

However, over the first two years of The Greens proposal for an identical levy, the amount raised is only $2.1bn (in 2014-15 and 2015-16) because there’s a lag getting the revenue in.  However, over 2015-16 and 2016-17, the Greens levy is forecast to raise $4.4bn.

It would appear there will also be a delay realising the full revenue from the Coalition’s levy.  If there is a lag, it may bring in somewhere around $2.5bn over the first two years.

A shortfall of this magnitude would come at a sensitive time for the Federal budget. It would leave nearly $1bn to be found to fully offset the Coalition’s unfunded PPL costs of $3.3bn over the first two years, or around $2bn if the Coalition intends to raise $4.4bn over the same time to include in its proposed savings of $31bn.

Unless the Coalition plans to introduce the business levy one year early starting on 1 July 2014?  Wonder what business would think about that? It would be useful for the Coalition to say if they have an income lag ‒ or not – and/or how they propose to obtain maximum revenue from the levy in Year 1 of their scheme.

The Coalition should release its updated PBO costing for PPL and, more importantly, its own arithmetic as soon as possible so that voters can understand how much its scheme actually costs; how much extra they are going to be contributing to it and from where.

On Page 6 of the 18 August policy document, the Coalition states that the 1.5% levy on 3,000 large companies will be imposed to fund its PPL scheme.

While this sounds admirable, we shouldn’t forget that the Coalition will neatly shift the same onto taxpayers by giving business a corresponding 1.5% reduction in company tax starting on 1 July 2015.

All this is before you start looking at the impact of the $1.6bn reduction in franking credits to affect self-funded retirees and other investors caused by the levy.

It would help understanding of the complete financial impact of a new way of doing PPL to have a succinct statement from the ALP about how its policy works in practice — so like can be compared with like.

With no ALP comparison document to hand, coming to an informed decision about the two types of PPL is very difficult for voters, especially if one is trying to figure out which one is preferred on philosophical, cost and/or payment level grounds.

However, the real issue with the Coalition's new PPL idea (this also applies to the ALP’s policy) is the unaddressed ineligibility of many low income earners not in permanent full-time employment and the fact that women who have changed jobs within the previous 12 months are also ineligible. The work tests under all the PPL schemes and the Fair Work Act are not the same.

Recently released NATSEM modelling in The Guardian points out low income primary carers, mostly women, may not be as well off in a financial sense as they expect under the Coalition’s scheme because of the number of times they touch the tax and transfer systems.

Both the Coalition’s and the ALP’s proposals stack up poorly against population policies (non-existent) and federal funding for childcare, which is inadequate.

Tony Abbott has even waved the White Australia flag by saying that he wants to encourage high income earning women ‒ "women of calibre" ‒ to have more babies.  This is not acceptable in 2013.

Nor is the fact that no scheme guarantees a woman her job back when she returns to work after PPL.

Then there’s the double-dipping of both employers’ and the Federal Government’s schemes, also permitted under existing ALP rules. The Coalition will allow people in the private sector to continue to double-dip.  If the same provisions were to apply to all employers, payments forgone in the private sector by making its staff also choose one scheme over the other, should be gathered up for the federal Treasury coffers.

The bottom line here is that rather than arguing about the unclear details or costs of inadequate policies, all three political parties should go back to the drawing board and try again.

Sarah Brasch has experience with Federal Government financing and has worked on new policy proposals and their costings.  She is also the National Convenor of Women for an Australian Republic and a fairly inactive member of The Greens.  She has spent the last couple of weeks taking a close look at the three Paid Parental Leave policies for Women’s Electoral Lobby. For more on the Coalition's costings, finally released today, read Greg Jericho's analysis in Guardian Australia here.

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