Palmer and the Greens have got to be kidding

Instead of negotiating on Abbott’s paid parental leave scheme, the Palmer United Party and the Greens should be arguing for the money to be spent improving childcare provision.

What merry hell the Palmer United Party is causing the Abbott government in the senate, and still two months from the new PUP senators actually taking their upper-house seats.

After telling the government last week it would not pass its paid parental leave scheme "at the current rate", PUP has followed up this week saying it will block both the carbon tax and mining tax repeals if the government tries to sneak its Direct Action plans through the senate with the budget bills.

Palmer has said he will not allow the Direct Action plan to pass, so by tying it to supply bills, the government thinks Palmer will blink at the last minute rather than create a constitutional crisis. Good luck with that one.

Of the three stalled policies, the one most likely to pass is the $5.5 billion paid-parental leave scheme.

That’s because the Greens know a thoroughly socialist policy when they see one, and as long as Abbott agrees to drop the maximum income covered by the scheme to $100,000 (currently it’s $150,000), they look likely to help it through the senate.

That would be a pity. The PPL scheme is almost universally condemned by economists and business leaders as too expensive, and it really won’t do as much for the economy as Mr Abbott likes to argue.

The theory is that it will increase female participation in the workforce, lift national productivity, and help women not fall so far behind with their retirement savings.

However, as  Trisha Jha, a policy analyst at The Centre for Independent Studies argued recently: ".. the dent in women's savings at retirement compared to men's is not caused by six months of parental leave; it's the years spent in low-paid part time or flexible work due to personal choices or inadequate childcare availability."

She continues: "Productivity and participation are the bigger issues. They are not the same thing ... The high-productivity earners the government wants to entice back into the workforce are most likely to go back anyway, thanks to high pay and generous employer-provided enticements like flexible work and on-site childcare."

The common thread there is childcare -- a much bigger issue for the economy than parental leave.

What Palmer, or the Greens for the matter, should be arguing is that money set aside for the PPL should be redirected to boosting childcare provision.

That would make sense on a number of levels. Demand for long-day-care places is growing at around 8 to 9 per cent a year, and is a growing strain on the federal budget in its current form.

And the problem is, the complexity of child-care funding means tax-payers are not getting value for money -- we spend too much to get too few productive workers (mostly women) back into the workforce.

The Abbott government asked the Productivity Commission in November to review childcare, and after taking around a thousand submissions, it has published a sample of them.

Some of the colossal problems with the current system are apparent is just one submission made by a mother in regional Kyneton, a town that is one hour by train from Melbourne’s CBD. She writes:

"There is one convenient childcare centre in Kyneton that I could take my 18 month old son to. However, I wasn't happy with the overall approach [of staff] to my husband and I, or our son, to be satisfied in leaving him there.

"Rather, my husband resigned from his job, and is now a full-time father. Great news for my son, not so great for the economy ... As well as the loss of tax input from my husband's wage, we are now also drawing parenting payments and family tax benefits for which we weren't previously eligible. Care near my workplace in Melbourne has an 18 month-plus waiting list. This is simply not acceptable ... Adequate, accessible and good quality child care is a much, much bigger issue to the productivity of women and families than parental and maternity leave."

The evolution of child-care support in Australia has been convoluted. The MacMahon government started funding not-for-profit childcare centres in 1972, a time at which female participation in the workforce was beginning to rapidly increase.

By the Hawke years, with new free-market ideology sweeping the developed world, funding for private sector childcare centres was introduced, though state subsidies to the private providers were used to keep the costs down.

Under Howard, the direct subsidies were scaled back, but a mixture of rebates and allowances to families was used to make childcare affordable. Notably, Howard was particularly kind to lower-income 'battlers' in his final budget of 2007 ... but he still lost the election.

When Labor came to power in 2007, its emphasis shifted to boosting the quality of provision, by having more four-year tertiary qualified staff in the system. While this looked like an impossible ask -- a shortfall of 24,000 staff was predicted for late in the Rudd/Gillard years -- in fact there were only 3,000 exemptions issued last year. Many diploma holders upgraded their skills, in many cases funded by their employers just to stay in business.

And what a business it is. While most centres offer good, basic childcare the complexity and poor design of the current funding arrangements have incentivised price increases, and in some cases gouging of the public purse.

Families are given up to $7500 per child in rebates, but that depends on what a centre charges. And the charges have spiralled over time.

Back in 1996, the Australian reported that "the average cost of care in a long-day-care centre is $140 a week". Using the RBA’s inflation calculator, that works out to be $217 a week.

Ah, the good old days. Centres now charge between about $80 a day and at the top end of the scale $160 a day, meaning a weekly rate of $400 to $800. Ouch.

But provision standards are very different. A submission to the Productivity Commission review from the UNSW’s Social Policy Research Centre notes:

"At the high end of the fee range, some centres offer lavish features including handcrafted cots, European bed linen, on-site chefs, baby massage, and a concierge to help parents make medical and other appointments.

"Under current arrangements, parents using such care for work-related reasons can have half their fees covered by public subsidy up to a cap. For example, two days a week of care at $160 per day costs $320 per week or $15,360 per year and the CCR would cover just under half of this for employed parents.    

"Our argument is not that there is an extensive amount of lavish service provision being subsidised through CCR or that providers are making excessive profits -- we do not have the data to make either of these claims. Rather, our argument is that subsidy arrangements should be structured to prevent this from happening."

Quite.  

Samantha Page, chief executive officer of umbrella industry group Early Learning Australia, says there is also a false economy operating on the quality side -- despite Labor’s efforts to improve quality of provision, more needs to be done. As in the Kyneton example above, when the quality is not there, parents drop out of work to care for their kids.

These are big economic issues. Skimping on support for childcare, or structuring the industry wrongly, means lost productivity, lost tax revenue, increased family payments and -- let’s not forget -- poor childcare for the little tykes.

The Greens recently published a national survey showing the huge waiting lists for childcare places. That’s commendable. However, it makes it all the more curious that they might be prepared to help Abbott steer around Clive Palmer to pass the 'gold plated' PPL scheme into law when the money could be much, much better spent on a reformed child-care sector.