David Farrar: Paid parental leave pains

The time for this debate is after the Government gets it books back into surplus. Photo / Thinkstock

The debate over paid parental leave may end up being painful for both National and Labour.

Labour List MP Sue Moroney's bill to increase paid parental leave from 14 weeks to 26 weeks is likely to have its first reading around July, and if Labour, Greens, NZ First, Maori, Mana and the United Future parties all vote for it, they can out-vote National and ACT 61 votes to 60, which will see it sent to a select committee for hearings.

After up to six months of select committee hearings and consideration, it would return to the House for a second reading, and then it would go through a committee stage where further amendments can be considered. Finally after that it is set down for a third and final reading, which may be in the middle of 2013. Only at the stage it has been set down for the third and final reading, can the Government veto the bill, on the grounds that it can't afford the cost.

The ability for the Government to veto spending is not new. In fact it was inherited from the United Kingdom and placed in the New Zealand Constitution Act of 1852, and reaffirmed in the New Zealand Constitution Act of 1986, passed by the Fourth Labour Government. In 1996, with the introduction of MMP, the probability of minority Governments increased. In order for a Government to be able to govern (which a Government not in control of its own finances would struggle to do - witness the inability of the United States Government to manage its own finances), it has to be able to control spending, so Parliament unanimously agreed that the Government could stop a bill which had a significant impact on the Government's finances. This "financial veto certificate" has been used quite often since 1996, including a dozen times by the Fifth Labour Government on amendments to bills it did not want.

However there is a potential political price for using the veto, if the public do not agree with its use. National faces the risk of looking stingy, and opponents will even claim the veto is undemocratic (despite their use of it in the past). The fact that Natiional can only use the veto at the very final stage of the proposed law change, means they could have months of stories about the issue, and how they will veto any change.

But there is also a political risk for Labour to be proposing almost half a billion of extra spending (over three years when fully implemented) at a time when their leader is promising he will run a thrifty Government, if elected. Half a billion dollars is a lot of money.

It is important to understand how paid parental leave works, and the pros and cons of any extension to it. The current law states that a new mother (she can transfer it to her partner) will receive a gross payment of up to $459 a week (equivalent to $24,000 a year) for 14 weeks. This money comes from the taxpayer, not the employer and is almost $6,500 in total. If the parent was earning less than $459 a week, then it is at whatever their salary normally was. An extra $6,500 I am sure is a significant help to many families with a newborn.

The intent of paid parental leave is that it makes it easier for a working mother to take a longer leave period from their job, which is good for both the parents and the baby. In fact there is considerable research that shows it is greatly beneficial to most families.

It was introduced in 2002, and was estimated then to cost $57 million a year. Since then the cost has increased to over $150 million a year, and this bill would see that almost double to over $300 million a year.

Apart from the cost, one criticism of the paid parental leave scheme is that it is universal, not targeted towards parents who most need assistance. A wealthy couple with millions of dollars of assets will receive just as much paid parental leave, as the couple on the full-time minimum wage. Some advocate that welfare should be targeted at low to middle income families, and that it is economically wasteful to be spending taxpayer money on those well off.

The potential pain for National is if they are seen as unsupportive of new parents. The Government does not want to be seen as forcing parents back to work so quickly, so that an already stressful time becomes even more stressful. If National do not communicate well why they have said they will use the financial veto on this bill, they could lose support from aspiring families.

However there is some potential pain for Labour also. Once the transition period is complete, the extra cost of their proposed law is over $150 million a year (from Labour's own costings), and over a three year term that is almost half a billion dollars. The New Zealand public have become wary of promises that can't be funded. Phil Goff's inability to be convincing on this issue in the campaign significantly damaged Labour. David Shearer needs to be careful that his policies match his rhetoric of being "thrifty".

Proponents of extending paid parental leave point to the many countries in Europe that pay it for more than 14 weeks. But they do not always point out, the economic positions of the countries with these more generous schemes.

France pays 16 weeks of paid parental leave. It has also just announced 65 billion euros of spending cuts to eliminate their deficit, plus an increase in VAT and corporate taxes.

Spain also has 16 weeks paid parental leave and a debt of 820 billion euros. Their unemployment rate is 24% and they still have 35 billion euros of spending cuts looming.

The infamous Greece has 17 weeks of paid parental leave, and its bankrupt economy has just had $240 billion of bailout money from other countries.

Italy at 22 weeks paid parental leave is aiming for 70 billion euros of austerity savings.

Ireland has 26 weeks paid parental leave. They are cutting $6 billion from their spending, have cut all public servants pay by 5% and put VAT up to 23%.

Most generous of them all is the United Kingdom with 39 weeks of paid parental leave. Their deficit is so high the Government has announced the largest spending cuts since World War II, with 83 billion pounds to be saved. The civil service is losing 490,000 jobs and most government departments are facing not a freeze but a 19% spending cut.

Now of course it is not paid parental leave alone that has led to these dramatic spending cuts. But when people point to how the schemes in Europe are more generous, it is useful to be aware of what happens when Governments allow deficits to continue unabated. The medicine down the road is far more bitter, than being more fiscally restrained earlier.

I think there is good debate to be had on the merits of extending paid parental leave. But I think the time for that debate is after the Government gets it books back into surplus, so we would not be borrowing money from overseas to pay for any extension.