Tuesday, 27 August 2013

Paid Maternity Leave: "How can we afford it, Mr Abbott?" I'll tell you.

The reason Abbott's plan for Paid Maternity Leave is a good one is all about population growth. I mentioned in my first post that by 2050, we'll only have 2.5 working Australians for every person aged over 65, so we have two options if we want the country to grow; breed or import.

As the population grows, so too does the economy. Population growth has been responsible for roughly half the economic growth we've seen over the past 20 years. Without consistent, predictable, positive population growth, the economy will suffer. 

It's a well known fact that richer families have fewer kids than poorer ones. While people with less money wouldn't make worse parents, they will be far more restricted in what they can offer their children, and are more likely to require more assistance from the government.

Having looked at what benefits are available, a 'low income' parent may get the (to be removed) $5,000 baby bonus, plus up to $4,000 a year until the child turns 19 in Family Tax Benefits - this can potentially total $63,000 over the course of the child's life. The way I see it - we want rich people to have kids. Once they have their potential $75,000, they probably wouldn't be eligible for another government hand out in their life.

What Abbott has proposed is that anyone earning up to $150,000 will get 6 months salary when they go on maternity leave. To the little old lady that's asking 'How can we afford this, Mr Abbott?', let me explain:
  • The theoretical parent earning $150,000 would be eligible for a taxable $75,000 under this scheme. When tax is taken out, this is reduced to around $52,150 that the Government is actually paying (on 2014 tax rates).
  • Based on the $43,000 this parent is already spending on tax each year, this will take about 15 months for the Government to earn this money back from the individual.
  • If the child earned $70,000 for 40 years of their life, they would have paid $570,000 in tax using today's rates (if we're looking purely at the Government payback - admittedly not including any expenses), plus contributing to the larger economy. 
Now let me turn to the little old lady on a pension earning $19,000 p.a.. 
  • This year, you cost the taxpayer $19,000.
  • Next year, you cost the taxpayer $19,000.
Now, how can we afford that?

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