It has been a year since Tony Abbott was sworn in as Australia’s 28th Prime Minister. Since coming to office he has delivered on two of his most important election commitments: axing the carbon tax and the repeal of the Minerals Resource Rent Tax. One election commitment that has proven more difficult is the PM’s signature Paid Parental Leave scheme.

The government proposes to pay parents at their wages for 26 weeks (up to a cap of $50,000) rather than the current scheme which provides the full-time minimum wage for up to 18 weeks ($11,538). The PM argues that taxpayer funded PPL is a workplace entitlement that will boost female workforce participation. Others assert that wage-replacement PPL is necessary to realise the social benefits of parental leave. Both of these arguments are wrong.

Announcing his more generous PPL scheme on International Women’s Day 2010, the then opposition leader, said “Parental leave … ought to be as much part and parcel of any decent system of employment entitlements as sick pay, holiday pay and retirement benefits, all of which, one way or another, are mandated by government.”

Workplace entitlements are mandated by government but not paid for by it. The taxpayer does not pay for your sick leave or holiday pay. These are financed by employees by trading off pay in return for these conditions. Government funded PPL payments are a form of income support that should be means tested.

It is equally incorrect to assert that the $3 billion of additional spending associated with wage-replacement PPL is necessary to realise the social benefits of parental leave.

Writing in this publication in August Parnell Palme McGuinness argued that family policies such as PPL are “…aimed at increasing the numbers of children who will turn into taxpaying adults” and so taxpayers should pay for them. McGuinness goes on to justify the government’s proposal on the grounds that the increasing earning power of women in recent decades reflects how “…women’s time is becoming more valuable.”

When the Productivity Commission designed the Australia’s current flat-rate PPL scheme it made it clear that PPL would have a limited impact on fertility at best. Even if there were more conclusive evidence in support of this social benefit, it does not by itself justify the introduction of a new $5 billion welfare entitlement.

PPL provides substantial private benefits to families. Taxpayer funded PPL only provides additional social benefits insofar as some parents would be unable to take parental leave in the absence of the payment. While women’s time is becoming more expensive it is not clear that the “price” to be paid by the government for the provision of full-time child care must be equal to the price of the parent’s labour.

High-income parents are those most likely to have access to PPL workplace entitlements and also those most able to fund their own leave. There is no logic in providing the highest level of payment to the families that need it the least.

There is a world difference between providing a payment to a low-income family who would not be able to afford a period of parental leave, and providing payments to all families in recognition of those social benefits. Even then, to assert that high-income parents should get higher payments is to argue that the social benefits of the parenting of high-income earners are greater than those of low-income parents.

In fact, Jessica Irvine at the Daily Telegraph makes precisely that argument: “High-income-earning women embody a lot of skills and know-how that boosts not only their own economic productivity but that of their children.” However, there is no other part of Australia’s income support system where the government provides more money to those least in need. This is the primary reason most Australians do not support a massive expansion in PPL expenditure. It is the antithesis of Australia’s highly targeted welfare system.

An alternative approach that recognises the social benefits of parental leave, without imposing the entirety of the cost onto the taxpayer, is to provide PPL through a loans scheme similar to the Higher Education Contributions Scheme.Under a Parental Leave Contributions Scheme (PLCS) parents would receive the same payments that they would under the Coalition’s proposal but as a loan rather than a welfare payment. Repaying this loan would be the joint responsibility of both parents. Each parent would make annual repayments according to a progressive schedule of repayment rates as is the case with HECS.

Parents with the greatest capacity to make repayments would make larger repayments than those on lower incomes, while parents with annual incomes less than the full-time minimum wage would not need to make repayments in those years. It is a fairer approach than the government’s proposal as it allows families to fund PPL out of their own future incomes rather than using the taxes of low-income earners to finance larger payments to high-income families.

A PLCS would also achieve the gender equity objective of PPL. The progressivity of the repayment schedule would ensure the higher income parent (generally male) makes the lion’s share of repayments and would free women from having to finance their parental leave out of the wage discounts they incur in securing PPL workplace entitlements. This also greatly reduces the probability of default as it is rare for both parents to cease work after child birth.

It is important for family policy to adapt to changing demographic trends – such as the increase in female earnings – but policies that tax those on low-incomes to make larger payments to high-income families is never justified.