Productivity Commission

Paid Parental LeaveDraft report

Presentation to Melbourne

Paid Parental Leave Forum

5 November 2008

Productivity Commission 2

Where we are now

• Around 285 000 babies born in 2007– 175 000 to women in paid work prior to birth

• 53% of female employees and 50% of male employees have access to employer-provided paid parental leave*

Mothers returning to paid work after childbirth

3 months 6 months 12 months

All mothers 11% 20% 41%

Mothers employed prior to birth 15% 29% 58%

*Using adjusted ABS figures

Productivity Commission 3

Objectives

• Child and maternal health and wellbeing

– the importance of a 6 to 9 months timeframe

• Labour market attachment

– Lifetime perspective

• Work/life balance and gender equity

– The ‘sort of society we would like to live in’

Productivity Commission 4

Design features follow from objectives

Child & maternal welfare

Work/life balance& gender equity

Labour forceattachment

Adequate duration & payment

More than welfare for most

Employment-relatedmeasure

Includes provisions forboth genders

SuperannuationEmployment-based

eligibility test

Link to NationalEmployment Standards

Employers as‘paymasters’

Additionality

Productivity Commission 5

Key features of the Commission’s scheme

• Duration– 18 weeks parental plus 2 weeks paternity

• How much?– Minimum wage ($544 per week) regardless of

pre-birth income – taxable and included for means tests

– No access to baby bonus or FTB(B) while on leave

– Super at 9% of minimum wage or actual wage if lower – for subset only

Productivity Commission 6

Key features of the Commission’s scheme

• Who pays?– Government funds cash payments– Employers to fund capped super – Employers act as ‘paymasters’

• Eligibility– Work for average of 10 hours per week over 12

months before birth (incl. self-employed)– Extra conditions for super

• Non-eligible parents– Existing entitlements plus paternity leave plus

removal of means test on baby bonus

Productivity Commission 7

From the employee perspective

Have you given birth?

Have you worked for the last 12 months?

For an average of 10 hours a week?

With multiple employers?

With one employer? $543.78 for 18 weeks plus super

plus job return guarantee

$543.78 for 18 weeks

Productivity Commission 8

From the employer perspective

Has an employee given birth?

Has she worked for you for the last 12 months?

For an average of 10 hours a week?

Act as paymaster for government

Pay super for 18 weeks

Job returnguarantee

Productivity Commission 9

Eligibility

Employed mothers*

Not employed

Eligible for statutory paid parental leave 139,000

(79% share of employed)

Eligible for super contributions 118,000 (85% share of those eligible for paid

parental leave)

Insufficient workplace attachment 36,000 (20%

share of employed)

176,000

109,000

Mothers of newborn children

* Includes self-employed & contractors

Productivity Commission 10

How much per family?

Paid parental

leave

Paid paternity

leave

Total

$ $ $

Government contribution 9 788 1 088 10 876

Employer contribution  881  98  979

Total 10 669 1 185 11 854

Maximum paymentsa

a Benefits are all in gross terms (ignoring tax effects and offsets against social transfers) and are for a parental leave period of 18 weeks and paternity leave of 2 weeks

Productivity Commission 11

Business impacts

• Super contributions– capped & at 9%– additional eligibility tests– maximum cost 3% of annual salary

• Many small employers would face no costs in a given year– only face costs when person on leave– average 1.1% of employees would be on maternity leave per year

for businesses employing less than 20 people

• Paymaster function for some employers• Costs for business of overall obligations lowered by using

– quick reimbursement (maybe PAYG withholding)– existing administrative arrangements– better leave notices

• They will get retention benefits

Productivity Commission 12

How much will it cost each year?

0

200

400

600

800

1000

1200

1400

1600

Gross costs less Offsets = Net costs

Cost categories

$ m

illion

Parental leave $1,336m

Paternity leave $61m

Superannuation contributions $106m

Baby bonus savings $670m

Tax & other welfaresavings $307m

Net governmentcontributions

$452m

Net businesscontribution $74m

Net schemecost $527m

Productivity Commission 13

Funding by weeks

0

$200

$400

$600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18Weeks of parental leave

So

urc

e o

f fi

na

nc

ing

($

pe

r w

ee

k)

(a) Includes the net funding of paternity leave and tax deductions for employers' superannuation contributions

$543.78

Baby bonus savings Tax & budget savings

Additional cash cost to government

Net business super contribution

Other government contribution (a)

Productivity Commission 14

Gross costs of two models

Commissionscheme

‘Top up’ model

Government $m 1 398 1 398

Business $m 106 1 225

Total costs $m 1 504 2 623

Business share Share 7% 47%

Productivity Commission 15

A case study of a small business

PC scheme Top up model

Cost to employer of leave for one employee earning $65 000

$881 $13 856

Share of annual wage 1.4% 21.3%

Business gross revenue ------- $1 million -------

Net profit before policy change ------- $42 000 -------

Net profit after policy change $41 383 $32 301

% change in net profit -1.5% -23.0%

Business with 4 employees

*Based on a business with a gross margin of 6% and a tax rate of 30%

Productivity Commission 16

This is a draft report, so we will be seeking feedback

• Mid October: Background appendices on web• Mid October: Informal consultations with participants• 10 November: Hearings commence• 14 November: Closing date for submissions• End February: Final report to government

For hard copies of the draft report email:parentalleave@pc.gov.au

Productivity Commission

Paid Parental LeaveDraft report

Presentation to Melbourne

Paid Parental Leave Forum

5 November 2008