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Paying for parental leave

22 August 2013

Two of Australia’s leading economists have called for a rethink about paid parental leave, suggesting an income contingent loan scheme would be fairer and cheaper.

Writing in today’s Australian Financial Review, Crawford School’s Professor Bruce Chapman and Professor Warwick McKibbin said that while paid parental leave is important to society and parents, it shouldn’t come at a cost to big business or put further pressure on the Federal budget.

“It is critical to balance the right intentions behind parental leave arrangements and getting the economics correct; good parental leave policy needs to provide the proper incentives to those who wish to take advantage of the scheme and to ensure a degree and perception of fairness across society so as to encourage widespread support politically,” they wrote.

Chapman and McKibbin said that a better approach would be an income contingent loan – along the lines of the Higher Education Contribution Scheme (HECS) used in financing students through university. Their proposal would see parents receiving an income contingent loan for time off work to raise infants, with that money being paid back when parents’ incomes rise to a sufficient level. The proposal was originally floated in an article published in the Australian Journal of Labour Economics by Chapman and Dr Tim Higgins of the ANU College of Business and Economics.

“By stepping in with this financing option, the government helps individual families, and also society as a whole benefits from having parents caring for their infants in the critical early stages,” wrote Chapman and McKibbin.

“A broad and generous paid parental leave system does not have to break the budget nor does it need to involve higher taxes for companies or taxpayers. Now with bipartisan support for paid parental leave, it is a good time to make the policy more affordable for the economy.”

Read the opinion piece in the Australian Financial Review:

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