abbott’s $5.5bn baby bill

Tony Abbott’s $5.5bn baby bill.

Economists and business groups have expressed alarm at the Coalition’s $5.5 billion-a-year paid parental leave scheme, saying it will exacerbate the budget’s structural decline and ­hamstring the companies that will be ­levied to partially fund the scheme.

As it emerged the company tax levy may only raise enough to fund about half the cost of the scheme, and Labor launched a new ad blitz highlighting the Coalition’s pledged budget cuts, Opposition Leader Tony Abbott promised no more cuts would be required to find the extra funding for his scheme.

“This doesn’t make the fiscal situation worse, it’s fully funded,” he said.

The Coalition declined to release any costings other than to say the scheme would begin on July 1, 2015, cost $10 billion in its first two years and average about $5.5 billion a year when fully operational. Full costings would be released closer to the election, a spokesman said.

Shadow treasurer Joe Hockey said the scheme would be budget-neutral and had been fully costed by the Parliamentary Budget Office.

It would be paid for by the company tax increase, the abolition of Labor’s $1.8 billion taxpayer-funded scheme, income tax and superannuation contributions tax collected on the parental leave payments, and a decision to dis­allow double-dipping by state and local government employees.

If such an employee chose to opt out of their present taxpayer-funded scheme and change to the Commonwealth-funded scheme, the state or local government would help the ­Commonwealth with the cost.

Mr Abbott launched the policy on Sunday and confirmed it would be part- funded by a 1.5 percentage point levy on taxable company incomes of more than $5 million. This would affect about 3200 companies, or one in every 200.

He maintained it was a productivity measure, and pointed out there would be no net increase in the tax burden on big business because a Coalition ­government would also cut company tax for all companies by 1.5 points, also from July 1, 2015.

GREENS PLAN TO AMEND THE SCHEME
The Coalition policy would pay more than 125,000 women each year their full wage, capped at $150,000, for six months, plus superannuation. This means a maximum payout of $75,000 for six months’ leave.

The policy ­document makes no ­specific forecasts of increases to ­productivity or participation.

The Greens support the policy, except they believe the wage cap should be lowered to $100,000. Greens spokeswoman Sarah Hanson-Young said the party would amend the scheme in the Senate after the election to soften what she says is its inequity.

This would save little in the way of revenue because most women of child-bearing age earn less than $100,000 already.

The PBO costed the Greens scheme in June. Based on these costings, the 1.5 point levy would raise, for example, $4.3 billion in 2016-17, the second year of the scheme’s operation. But the government would also lose $1.7 billion that year in income tax as a result of the franking credits applied to the 1.5 point levy. That means the net amount raised by the company tax increase would be $2.6 billion that year, just under half the scheme’s cost.

Bank of America Merrill Lynch Australia chief economist Saul Eslake said it was “a dreadful policy” that would not increase productivity or participation.

He said paid parental leave should be funded by the employer, not the taxpayer. Taxing big business and re­distributing the wealth was “not a policy philosophy I would normally associate with the Liberal Party”.

“It reflects a pro-natalist philosophy.” Mr Eslake said the open-ended spending burden would further ­exacerbate the budget’s worsening structural deficit as detailed last week by Treasury in its pre-election fiscal and economic outlook.

Director of Deloitte Access Economics Chris Richardson said the scheme was the latest example of unsustainable spending by the major parties, joining the national disability insurance scheme and other big spending announcements.

BCA RENEWS ITS CRITICISM
“There’s less money yet we’re promising more of it and today’s yet another example,” he said.

“The stables will need to be cleaned out and Mr and Mrs Suburb have not been included in the conversation around that.”

The Business Council of Australia renewed its criticism upon the scheme’s launch.

“The BCA has consistently raised concerns with the Coalition’s policy of funding paid maternity leave through a levy on some businesses and we remain of that view,” said a spokesman.

“Lowering the tax burden on all of Australia’s businesses is critical to support investment and jobs, particularly at a time when many business are struggling and the economy is under­going change.”

There was some conciliation, saying access to paid parental leave was needed to increase workforce participation “to maintain our prosperity into the future, in particular to offset the impacts of an ageing population”.

Prime Minister Kevin Rudd claimed the Coalition would drive the economy into recession with all its cuts. Finance Minister Penny Wong did not believe the scheme could be funded without cutting the budget.

“You’re looking at $6 billion more in expenditure over and above what they’d fund out of the company tax increase that they’ve put in place to fund this,” she told Financial Review Sunday on the Nine Network.

Mr Abbott has promised in the past to scrap the company tax levy when the budget returns to a strong surplus .

On Sunday, he suggested that was a long time coming.

“I am not putting an end date on this levy,” he said.

The payments will be made through the Family Assistance Office to spare employers the administrative burden.

The policy will become a central part of the Coalition’s pitch to small business, which Mr Abbott will increase on ­Monday when he campaigns on his small business promises.


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