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August 27th 2013 print

Peter Smith

The PPL, not as bad as you think

It is too expensive, certainly. But Abbott's Paid Parental Leave scheme is hardly the threat to Australia's wealth and future that critics on both sides of the political divide would have you believe


Kevin Rudd’s latest jibe at Tony Abbott’s paid parental leave (PPL) scheme is that it would cost more than building a high speed rail link from Melbourne to Brisbane. Sounds impressive, but shows what a dunce Rudd is. The PPL scheme simply transfers income from one group of taxpayers to another. It is a transfer payment. Apart from its administration, it costs nothing. In other words, it uses up no resources.

A high speed rail link, on the hand, would use up (and undoubtedly waste) billions of dollars of resources. But what does any of this factual and logical stuff matter as Rudd capriciously moves naval bases and creates low tax zones in his quixotic quest for re-election.


Desperate, with irrelevancy looming again, paid parental leave (PPL) seems to have become the centrepiece of Rudd’s campaign to cling to power. Having created, or been part of creating, a complete and utter mess over the past six years of rank incompetence and duplicity, and with no plans save for fanciful talk, and with annoying personal mannerisms, and a bullying manner with underlings, and with most of your colleagues openly or secretly despising you; just what do you do?

First you must be amazed, with you leading them, that your side is still favoured by around 47% of voters. You probably think: what would I have to do to lose those people. Well the answer is that you would have to strip off and streak through the middle of hundreds of separate towns and suburbs rubbishing the local footy team and hurling insulting put-downs at every female shop assistant in sight. Apart from that, the votes are in the bank. The trick is to get another 3 to 5%; that is where Abbott’s PPL scheme is coming in handy.

Those running large businesses on the Labor Government’s teat (e.g., BlueScope Steel) are complaining that it will cost them money, presumably because they lack the wit to replace their existing parental leave schemes with the new scheme. Self-funded retirees came out of the woodwork complaining about the loss of their franking credits. Take an example. If you own 100,000 Telstra shares (≈$500,000) your dividends would fall from $40,000 per year to $39,160, in the very (very) unlikely event that the companies affected and the share market did not adjust for the change. Give us a break.

And then almost every economist who can be found is willing to be wheeled out to criticise the scheme and assert that it will do nothing to lift productivity. What relevant expertise or insight do economists have to make this judgement? The answer is none. In fact their contribution is negative because they think they know what they’re talking about but, in reality, they simply add distracting noise to the debate.

Productivity is driven by businesses seeking competitive advantage over their rivals. It is often driven by new and growing businesses, rather than by tired old businesses. Abbott’s PPL scheme, whatever you think of it, will tend to help new and growing businesses recruit and retain staff. Will this boost productivity? It well might. By how much; no-one knows; and certainly not economists. When you don’t know it might be best to keep shtum; which, unfortunately, usually doesn’t recommend itself to economists.

None of this is to say that Abbott’s PPL scheme is good. It is too expensive. More generally, parents should take care of their own children without other taxpayers picking up the tab. But let’s not pretend the scheme is either unusual in this age of entitlements or that it will break the bank. Its cost will be less than 1.3% of federal government revenue and will represent an additional cost of only about half of this. Education funding and the disability scheme and the NBN (when it and if it comes home to roost) are much more threatening to Australia’s future fiscal position than the PPL scheme.

The PPL scheme is a trivial impost when set against the huge task Abbott has in repairing the budget, courtesy of the Labor Government’s six years of maladministration and unfunded future spending commitments. His best chance is to get the private sector growing strongly again by instilling confidence, and by creating an accommodating environment, with less regulation, within which businesses continually boost their productivity.

Maybe the PPL scheme will help to improve productivity. Abbott might be proved right despite the misgivings of his critics on both sides of the political divide. But, whether he is right or wrong, the cost of the PPL scheme is a second- or third-order issue in one of the most important elections in Australia’s history. The real issue is whether a government with such an abysmal record, led by someone who even his own colleagues regard as dysfunctional, can be returned to power. Fortunately this looks most unlikely; otherwise it would suggest that the viability of Australia’s democracy is at risk.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics