The Coalition’s PPL scheme: budget drain or revenue raiser?

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The Coalition’s PPL scheme: budget drain or revenue raiser?

Posted 29/04/2014 by Buckmasterl

One of the most controversial features of the Coalition Government’s proposed Paid Parental Leave (PPL) scheme is its significantly greater cost compared with the current scheme. The more generous proposed scheme is expected to cost $5.7 billion per year when up and running in 2016-17, while the current scheme will cost $2 billion in that year. Media reports suggest that this has led some Coalition members of parliament to urge the Prime Minister to either abandon or ‘scale down’ his proposed scheme.

However, it is important to note that according to the Coalition’s 2013 election costings the scheme is expected to make money by its second year—that is, it will raise revenue of $1.7 billion in 2016-17. 

As can be seen from the table below (adapted from the costing document), the Coalition indicated that in 2016-17 the cost of its scheme would be more than offset by the following:

  • $2.0 billion from the existing PPL scheme, which would no longer have to be paid
  • $557.0 million from Commonwealth, state and territory government PPL schemes, which would no longer be paid
  • $665.0 million from ‘automatic adjustments to government spending and revenue’ (for example, taxes collected on the new higher PPL scheme payments; reduced cost of Family Tax Benefit with fewer families eligible due to receipt of higher PPL payments) and
  • $3.8 billion from a levy of 1.5% on companies with more than $5 million in taxable income.

Budget impact of the Coalition’s Paid Parental Leave Scheme Package

 

2014-15

$m

2015-16

$m

2016-17

$m

Total

$m

Gross cost of the Coalition PPL

 

-10

-4,108

-5,684

-9,802

Less

Existing government scheme

 

-

1,653

2,012

3,665

Existing Commonwealth and state public sector schemes

 

-

557

672

1,229

Automatic adjustments to government spending and revenue

 

-

665

946

1,611

Remaining Cost

-10

 

-1,233

-2,054

-3,297

Levy of 1.5% on company taxable income above $5 million

300

300

3,800

4,400

Net Budget impact – Coalition’s Paid Parental Leave Scheme Package

290

-933

1,746

1,103

Source: Fiscal budget impact of Federal Coalition policies, September 2013

Thus while it often appears from media reports that abandoning (or substantially reducing the generosity of) the Coalition’s PPL proposal could save billions of dollars, the Coalition’s costings suggest that this is unlikely to be the case.

If the Government were to abandon its proposed PPL scheme, it would continue to bear the $2 billion annual cost for the existing PPL scheme and it would not achieve the $1.5 billion in offsets from existing public sector employer schemes and other adjustments to spending and revenue. The value of these offsets would also be reduced if the Government were to reduce the generosity of its proposed scheme rather than abandon it altogether. If the proposed scheme is not implemented, it is unlikely the Government will implement the 1.5% business levy, given it is specifically intended to help pay for its PPL scheme.

As it stands, it is difficult to see the Government abandoning a policy that will actually produce budget savings.

Comments

  • 8/05/2014 11:18 AM
    Anonymous said:

    You say that the value of the offsets would be reduced if the Government were to reduce the generosityy of its proposed scheme. Is that the case now, given that the amount does seem to have been reduced to $100k? Would the Government still make money from the policy in the second year?

  • 15/05/2014 11:35 AM
    Luke Buckmaster said:

    Hi Anonymous, It would seem logical that the value of offsets will now be reduced but we don't have access to the information that would show us by how much.


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