Why Europe is the wrong model for paid parental leave

You'd have to be living under a rock not to notice that the big tax and spend welfare states of Europe are coming under some, well... pressure.

With budget cuts in Britain and French pension strikes, it is becoming apparent that the taxpayer funded "cradle to the grave" welfare model is unsustainable.

Apparent to everyone, it seems, except the European Parliament. In the very same week that the Cameron government promised to wind back "middle class welfare" in the form of cash payments to families, the EU voted to increase maternity leave to 20 weeks at full pay.

While Australia is sitting pretty as one of the few developed economies to come through the financial crisis relatively unscathed, there are some lessons in this for us.

Britain, which already requires employers to pay for 6 weeks leave at 90% of a woman's salary, and then kicks in a smaller taxpayer funded statutory allowance for another 33 weeks, has vowed to fight the new European ruling all the way. Even if they wanted to offer the proposed allowance, they simply can't afford it.

Back in Australia, our new paid parental leave scheme is due to start in January 2011. At 18 weeks at the minimum wage it is more modest than the existing British scheme, and doesn't come close to the proposed EU model.

But both the Coalition and the Greens went to the last election pushing for a more generous 26 week payment. While the Greens said their scheme would be paid at minimum wage, the Coalition promised that new mums on salaries of up to $150,000 a year would be paid at their full wage.

On top of this, Tony Abbott floated the idea of a $10,000 cash payment for stay-at-home mums as compensation to families who miss out on parental leave. Even the unions started barracking for parental leave to be extended to non-working women.

This is where the comparison between Britain and Australia starts to become apt. With such a tight parliament, it will not be surprising to see the Opposition and the cross benches band together to push changes to the parental leave legislation. Once the scheme is in place, expect to see a lot of pressure to expand and upgrade it.

This might not necessarily be a problem. Paid parental leave now has bipartisan support, and surveys indicate that a majority of voters back it too. If we accept that some taxpayer funded support for families is legitimate, then it makes sense to provide it in a way that is popular among families.

Where it will be a problem is if the new payment is allowed to blow out the already bloated family payments budget. By 2011-12 paid parental leave is expected to add $1.3 billion to the budget.

This is on top of the billion dollars being spent on the Baby Bonus this year, and the staggering $17.8 billion being spent on Family Tax Benefit.