Small business divided on Coalition’s $5.5 billion parental leave policy – where’s the money coming from?

The small business community has enthusiastically welcomed more details of the Coalition’s parental leave plan, including a confirmation that under the scheme businesses wouldn’t be forced to make direct payments to workers.

However, with the scheme set to cost $5.5 billion a year, the Coalition is now under pressure to fully cost the scheme – and business is worried it could be hit.

“The question is, of course, how are they going to pay for it?” asked Peter Strong, executive director of the Council of Small Business of Australia. “We support it, but we want to know that.

“And we support it because, from a small business point of view, it creates a level playing field.”

However, not all are happy. Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, said the scheme should be a safety net topped up by business “on a voluntary basis”.

“There continues to be some significant industry concerns about the scheme, the only area where we agree with Mr Abbott’s scheme is on the administrative side,” he says.

“The funding basis for the scheme relies heavily on a levy that would come into operation at the same time as a company tax reduction. It’s not good policy.”

The Coalition’s policy had already been announced, but more details were unveiled by Coalition leader Tony Abbott yesterday. The scheme will pay out an employee’s salary for 26 weeks – eight weeks longer than the government’s current scheme – and will begin from July 2015.

The scheme will cost $10 billion a year during the first two years and $5.5 billion a year thereafter, and shadow treasurer Joe Hockey said the entire scheme was fully costed.

The major contributor to the Coalition’s savings is the 1.5% company tax increase for the largest 3000 businesses in Australia – the 1.5% increase announced by the Coalition last week eliminates any net tax burden.

The policy would also cap the payment at $75,000 for six months’ leave. Unlike the current government scheme, the Coalition will pay superannuation.

Overall, workers will be better off under the Coalition scheme, which will pay minimum wage workers $16,200 over six months, besting the current pay rate by $5000.

Peter Strong says small business supports the Coalition’s promise to make the payments through the government, and not make SMEs act as paymasters – one of the most controversial points of the scheme among businesses.

“The only bit of red tape a business has to go through is a form saying that an employee earns a certain amount of money,” he says.

“From our point of view, this is access to a very good paid parental leave scheme which staff should have.”

Strong also says employees now won’t be tempted to leave small businesses and head to larger companies which can afford to offer more generous policies.

However, the scheme has attracted criticism. The Greens want the payment cap reduced from $150,000 a year to $100,000, and the Business Council of Australia has said the tax burden on larger businesses was unfair.

“Lowering the tax burden on all of Australia’s businesses is critical to support investment and jobs,” it said in a statement.

The higher tax burden for the largest 3000 companies will likely affect small and medium businesses as well.

And economists aren’t happy either, targeting the scheme as an example of excessive spending. Deloitte Access Economics economist Chris Richardson told The Australian Financial Review there is less money, “yet we’re promising more of it, and today’s yet another example”.

Finance Minister Penny Wong told the Nine Network yesterday the scheme could not survive unless there were severe cuts to the budget.

“You’re looking at $6 billion more in expenditure over and above what they’d fund out of the company tax increase that they’ve put in place to fund this,” she said.