Report highlights

In a paper commissioned for CEDA, entitled Sharing the Costs of Parental Leave: Paid parental leave and income contingent loans, Professor Bruce Chapman, Tim Higgins and Lynette Lin of the ANU propose a solution for Australia to fund an extended period of paid parental leave.

The paper proposes a new funding mechanism - a HECS-style income contingent loan - as an optional addition to a paid parental leave system. It examines the financial consequences under which the government is lender and parents are solely responsible for repayment. While not examining the extent to which the total costs of paid parental leave should be borne by taxpayers, employers and individuals, the paper does raise the prospect of employers contributing in some form to the funding arrangements.

For many parents with existing mortgage obligations and limited household income while they care for children at home, borrowing to finance parental leave may be problematic or impossible. Under an income contingent loan for paid parental leave, the debt repayment obligation is transferred to a time in life when the family's household incomes are relatively higher. Repayment of the loan would only be required when households are in a position to pay. In essence, the paper puts forward a "user-pays" approach, presenting simulations of revenue streams in different households in which income contingent loans are used to help finance paid parental leave.

The analysis suggests that such a system would introduce choice and flexibility without requiring major contributions from taxpayers.