The government recently passed legislation enabling paid parental leave for the first time in Australia’s history. With an election looming, paid parental leave has become a key election issue. This article compares both Labor’s and Liberal’s paid parental leave polices.
Labor's Policy
The passing by the Labor government of a paid parental leave scheme was seen by many as a win for those thinking of starting a family. This policy is now law, and comes into effect on 1 January next year.
Labor’s policy comprises 18 weekly payments at the minimum wage (subject to eligibility).
Under Labor’s policy, it is important to consider whether you are better off taking the baby bonus rather than the new paid parental leave scheme.
By taking paid parental leave, you forfeit the baby bonus, family tax benefit Part B and the dependent spouse offset. Industry modelling puts the average additional benefit at only $1,000 to $2,000 – and shows in some cases it could be to your detriment.
The rate of parental leave is the minimum wage (currently $569.90 a week) paid for 18 weeks – or $10,258 taxed. The baby bonus (now spread over 13 fortnights) is $5,294 untaxed. And on top of that comes the allowance and offset.
Take a couple earning $150,000 a year each, who have a baby on 1 March whereby the woman will not return to work. Paid parental leave would find them with $6,309 after tax, while the baby bonus alternative would net them $6,808. The higher amount is largely due to no tax on the baby bonus, and the other government benefits available.
The situation changes if the baby is born on 1 October. Here parental leave wins out, but only by $218. Not all it’s cracked up to be, is it?
Parental leave will be paid where the primary caregiver has taxable income of $150,000 or less in the financial year before birth. The baby bonus is paid where combined income in the six months after birth is $75,000 or less.
Where you are eligible for both paid parental leave and the baby bonus, the decision should come down to your incomes, when the baby is born, and how long you will be off work.
Liberal's Policy
The Liberal’s scheme is much more generous and will comprise 26 weeks in duration at full replacement wage.
Liberal’s scheme is proposed to come into effect on 1 July 2012 (subject to passing through parliament). In the meantime, Labor’s scheme will continue to apply from 1 January next year.
The key details of the Liberal’s scheme include:
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Provide mothers with 26 weeks paid parental leave, at full replacement wage (up to a maximum salary of $150,000 per annum).
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Include superannuation contributions.
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Allow 2 weeks to be dedicated paternity leave to be used simultaneously (or separately) to the mother’s leave. This is paid at the father’s replacement wage (up to a maximum of $150,000 per annum).
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Use the same work test and eligibility conditions as Labor’s scheme (i.e. primary caregiver taxable income must be $150,000 or less in the year before birth).
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Be funded by a 1.5% levy on companies who have taxable incomes in excess of $5 million.
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Be paid and administered by the Family Assistance Office.
The Liberals argue that their scheme will bring Australia into line with the rest of the world.
France, Germany, Russia, Austria, Denmark, Serbia, Singapore, Slovenia, Estonia, Greece, Mexico, Morocco, Luxembourg, Poland, Norway, Portugal, Switzerland and Spain deliver a paid parental leave payment based on 100% of the mother’s pre-birth earnings. No other country derives their rate of payment from the national minimum wage.
For more information please contact Ryan Love on 1300 856 338 or ryan.love@apexpartners.com.au.