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Pregnant pause

22 August 2013

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Peter Whiteford is a Professor in the Crawford School. He works on child poverty, family assistance policies, welfare reform, and other aspects of social policy, particularly ways of supporting the balance between work and family life. He has published extensively on various aspects of the Australian and New Zealand systems of income support. He teaches Social Policy, Society and Change (POGO8024) and Social Policy Analysis (POGO8025).

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How does Australia compare to the rest of the developed world in the contentious and potentially costly area of paid parental leave? Peter Whiteford casts his eye over the international numbers.

It’s an election campaign that only an economist could love. Over the last couple of weeks, observers have poured over the campaign promises and wondered where the money to pay for them is going to come from.

Nowhere is this more evident than in the contentious and potentially costly area of paid parental leave. The Coalition’s policy document for its scheme says that “Of the 34 countries in the Organisation for Economic Co-operation and Development (OECD), 33 offer paid parental leave schemes. Of these 33 countries, Australia is one of only two that fails to pay leave based on a replacement wage.” But is Australia really an international laggard in the developed world?

The Coalition’s policy for paid parental leave would provide mothers with 26 weeks’ paid leave, at 100 per cent replacement wage up to a maximum annual salary of $150,000, or the minimum wage if greater, and will include superannuation contributions. The proposal would also allow two out of the 26 weeks to be dedicated paternity leave, paid at the father’s replacement wage (up to the same maximum of $150,000) or the minimum wage if greater, plus superannuation.

This means that the maximum payment under the Coalition’s policy will be $75,000 over the 26 week period. This stands in contrast to the government’s current scheme, which pays a flat-rate benefit equivalent to the minimum wage for 18 weeks or around $11,200 before tax.

The accuracy of the above claim depends on how one interprets “leave based on a replacement wage”. Appendix Two of the Coalition policy is a table downloaded from the OECD Family Database, which among many other indicators of family policies and outcomes includes analysis of “Key characteristics of parental leave systems”.

It shows that the USA is the only OECD country without paid parental leave, and that Hungary and Australia are the only countries that pay flat rate entitlements. All other OECD countries base their payment on the previous salary of the mother, so the Coalition is right on this fairly narrow point.

But the relative generosity of different schemes depends on the proportion of salary replaced, whether there is a ceiling on payments, how high that is, and also on the length of time payments are made.

Nine OECD countries pay full replacement wages without a ceiling: Austria, Chile, Estonia, Greece, Germany, Mexico, Poland and Slovenia. Norway also pays 100 per cent for nine weeks, but this is part of a broader parental leave scheme, where the replacement rate varies with the total leave taken. In all of these countries, paid maternity leave is for a shorter period than the proposed Coalition scheme, although Estonia and Poland are nearly as long.

Nevertheless, it is fair to say that these nine countries could have more generous schemes than the Coalition proposes for a small number of very high income mothers.

In the case of Chile and Mexico, this generosity is probably more apparent than real, because the majority of mothers are not in the formal labour market, so in Chile 52 per cent of payments go to the richest fifth of women and just 5 per cent to the poorest fifth.

There are three countries – Italy, Japan and Portugal – that pay less than 100 per cent but also have no ceiling. But in Japan a mother would have to earn the equivalent of more than A$465,000 to get as much money as under the Coalition proposal.

There are eight countries that pay 100 per cent of the mother’s wage but with ceilings like the Coalition proposes. However, the ceilings are lower, so they are less generous schemes. There are 11 that pay less than 100 per cent but also have ceilings, so they are definitely less generous the Coalition’s proposal.

For example, New Zealand bases payments on previous salary and pays 100 per cent but up to a very low maximum of around NZ$460 a week or a maximum payment of NZ$6420 over 14 weeks. Canada pays a replacement rate of 55 per cent of the mother’s salary for up to 18 weeks with a maximum payment of CAN$485 per week or a maximum payment of around CAN$7,760. Both of these payments are well below the level currently paid in Australia of A$11,200.

Generally speaking, the payment ceilings in other countries are well below the Coalition’s proposed level in Australia. For example, the Netherlands has 100 per cent replacement of salary, but the maximum payment over 16 weeks is under 22,000 Euro and the ceilings also produce a maximum payment over 16 weeks of around 13,000 Euro in Spain and 12,000 Euro in France.

The highest payment amount in countries with 100 per cent replacement but also a ceiling on the amount appears to be Luxembourg, where the maximum payment over 16 weeks is around 36,000 Euro – approximately A$53,000, so still less generous than the Coalition proposal.

If you interpret “leave based on a replacement wage” as one with some relation to the previous salary of the mother, the Liberals are right. But if the intention of the statement is to indicate that Australia will simply become like most other OECD countries, it is incorrect. The maximum level of assistance under the Coalition proposal will be one of the highest in the OECD.

A version of this article was originally published on The Conversation:

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