A better alternative to paid parental leave

Instead of wasting money on an extravagant paid parental leave scheme, Abbott should redirect the funds towards childcare, which would boost female workforce participation and benefit the budget.

If the Abbott government is keen on reaching its G20 growth target, then it should immediately drop its unpopular paid parental leave scheme and redirect the funds towards childcare and nannies. Doing so could reap the economy an additional 0.4 per cent to real GDP while also boosting workforce participation among women.

In a report on Childcare and Early Childhood Learning, the Productivity Commission has struck a further blow for the Coalition’s expensive olive branch to women. Instead it advocates for redirecting part of that funding towards Early Childhood Education and Care (ECEC) services.

The Commission “considers that it is unclear that the proposed changes to the Paid Parental Leave scheme … would bring significant additional benefits to the broader community beyond those occurring under the existing scheme”. As a result, there may be a case for “diverting some funding from the proposed new scheme to another area of government funding, such as ECEC, where more significant family benefits are likely”.

The scope and size of ECEC services have expanded rapidly over the past five years, with federal government funding escalating to around $7 billion per year. But many families continue to report difficulties finding adequate care at a reasonable price.

The Productivity Commission recommends streamlining the system so that support takes the form of a single child-based subsidy that is means- and activity-tested for up to 100 hours per fortnight. The subsidy would be paid directly to the family’s choice of approved services.

They also recommend broadening the range of approved services so that it covers both existing service providers but also in-home care services such as nannies. The change would add some much needed competition to the childcare sector.

Broadening the scope and reducing the cost of childcare for parents will boost labour force participation among women. The benefits of such participation are numerous, covering everything from increasing growth and broadening the tax base to reducing poverty and economic disadvantage.

The high cost of childcare creates a significant disincentive for mothers looking to re-enter the workforce, particularly those who prefer the flexibility of part-time work. For those who cannot find a subsidised child care position, re-entering the workforce imposes a high effective tax rate on young women, which can be exacerbated further if welfare benefits are also slashed.

The Productivity Commission suggests that these changes could boost the labour force by around 47,000 or around 0.4 per cent of total employment. This would boost real GDP by 0.4 per cent or around $5.5bn. That’s nothing to sneeze at, particularly as our baby boomers head into retirement and our terms-of-trade continues to decline.

The findings from the Commission are broadly consistent with previous studies from the International Monetary Fund and Organisation for Economic Co-operation and Development, which found that reducing the cost of childcare promotes female participation in the workforce -- to a greater degree than paid parental leave and at a lower cost. The IMF estimates that a 50 per cent reduction in childcare costs could boost participation by between 6.5 to 10 per cent.

So if you were a government that believed it faced a budget emergency, wouldn’t you be better off pursuing the cheaper policy that would boost workforce participation and provide benefits to the budget both now and in the future?

Isn’t that better than providing more middle to upper-class welfare?

The Productivity Commission has given Abbott a clear opportunity to abandon his expensive paid parental leave scheme and redirect those funds towards more productive goals. Paid parental leave is yet another form of welfare, while childcare spending is an investment in Australia’s women and children.

If the budget is as tight as Abbott and Treasurer Joe Hockey believe, then surely we must prioritise getting bang for our buck. They cannot in good conscience cut welfare to the poor, while simultaneously supporting their paid parent leave scheme.

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