Response to Further Information Requests from the Government Administration Committee on the Parental Leave and Employment Protection (Six Months Paid Leave) Amendment Bill This report responds to further information requests from the Government Administration Committee (the Committee) on the Parental Leave and Employment Protection (Six Months Paid Leave) Amendment Bill (the Bill). The Ministry of Business, Innovation and Employment, as the lead advising agency to the Committee, has compiled the report and brought together responses from the other advising agencies where relevant. The other agencies advising the Committee are The Treasury, Inland Revenue, Ministry of Education and Ministry of Health. Structure of Report This report adds to the information provided in the previous report entitled Response to Select Committee Information Requests on the Parental Leave and Employment Protection (Six Months Paid Leave) Amendment Bill (the Report). As requested by the Government Administration Committee (the Committee), this report covers the following: two cost estimates of the proposal Bill by financial year, based on a 1 April 2012 implementation, and a 1 April 2014 implementation the Early Childhood Education subsidy calculations, including the original two Scenarios, and a third Scenario to calculate the savings based on an upper bound assumption an assessment of other potential savings associated with an additional 12 weeks of paid parental leave, including further work on the potential impact on o the Working for Families entitlement o tax revenue o the unemployment benefit and DPB payments o breastfeeding and associated health savings. 1
TABLE OF CONTENTS Paid Parental Leave Cost Estimates based on drafting of the Bill... 3 Cost estimates based on a 1 April 2012 implementation date... 3 Cost estimates based on a 1 April 2014 implementation date... 5 Summary of Estimated Offsetting Costs... 5 Analysis of early childhood education subsidy offsetting costs of extending paid parental leave... 7 Other potential savings associated with extended Paid Parental leave.. 12 Impact on Working for Families Entitlement... 12 Impact on Tax... 12 Impact on Unemployment Benefit and DPB payments... 13 Health benefits and savings on health from breastfeeding... 16 Appendix 1 Original Cost Estimates... 19 Appendix Two Comparing total cost estimates... 20 2
PAID PARENTAL LEAVE COST ESTIMATES BASED ON DRAFTING OF THE BILL 1. The Parental Leave and Employment Protection (Six Months Paid Leave) Amendment Bill proposes to extend paid parental leave to a maximum of 18 weeks on 1 April 2012, then a maximum of 22 weeks on 1 April 2013, and finally a maximum of 26 weeks (six months) on 1 April 2014. 2. The original cost estimate was based on the current cost multiplied by the proposed maximum duration. It was noted at the time that the estimate was an upper bound, as not all paid parental leave (PPL) recipients would take the full 26 weeks. 3. The Ministry of Business, Innovation and Employment (the Ministry) considers that subsequent work to estimate the return to work patterns of PPL recipients means that it is reasonable to assume a 3.8% reduction of the additional cost of extending PPL. 1 This is now reflected in the two cost estimates below, the amount in brackets being a 3.8% reduction of the total additional cost. 4. Below are the cost estimates based on a 1 April 2012 implementation date, as previously requested by the Committee. These estimates are the same as those provided previously but have been clarified to show that they are in fact based on financial years, as originally requested, and the total cost (outlined in paragraphs 7 and 9) now reflects the 3.8% reduction. The second table responds to a further request from the Committee to provide cost estimates based on a 1 April 2014 implementation. (The original cost estimates are attached as Appendix One.) Cost estimates based on a 1 April 2012 implementation date 2 5. The exact drafting of the Bill assumes a commencement date of 1 April 2012. Although 1 April 2012 has already passed, for exact replication of the wording of the Bill we assumed the Bill would have come into effect from 1 April 2012, and therefore we retrospectively applied an increased cost assumption to the 2011/12 year. 6. These estimates are calculated by financial years. The key difference is that the original estimates have been adjusted to reflect the fact there will be a slightly higher cost for three months of each financial year (for example the 2011/12 year includes three months where PPL is paid for an additional four weeks) 3. 1 As part of further work undertaken to assess savings on the Early Childhood Education subsidy, an assumption has been made on return to work patterns during the proposed additional 12 week period that is, that 5%, 10%, and 15% would be working at 4,5, and 6 months respectively. 2 The Treasury has undertaken this estimate based on the Ministry s original cost estimates. 3 The calculation of cost is based on ¼ of the preceding financial year and ¾ of the current financial year. For example the 2012/13 financial year is based on ¼ of the 2011/12 year and ¾ of the financial year. This picks up the fact that an extra four weeks PPL comes into effect from 1 April 2012, 1 April 2013 and 1 April 2014. 3
Table 1: Estimated cost 1 of proposals by financial year (1 April 2012 implementation) ($M) 3 Financial Years 2011/12 2 2012/13 2 2013/14 2 2014/15 2 2015/16 2 Existing scheme (14 weeks) Additional PPL of 4 weeks (Introduced 1 April 2012) Additional PPL of 8 weeks (Introduced 1 April 2013) Additional PPL of 12 weeks $157.78 $164.90 $169.85 $174.93 $176.20 $169.30 $220.83 $275.28 (Introduced 1 April 2014) 1 Figures are before tax and estimates are based on the 2011/12 financial year. 2 Increase in average ordinary time weekly earnings estimated at 3% per year. 3 These estimates are an upper bound, given that not all recipients will take the full 26 weeks. 4 Amounts in brackets include a reduction of 3.8% to reflect a return to work assumption $320.18 $327.30 (308.02) 4 (314.87) 7. The total cost of the Bill introduced from 1 April 2012 is estimated to be an additional $306 million over the four year forecast period until the 2014/15 financial year and an additional $451 million over the five year forecast period until the 2015/16 financial year. 4 This cost takes account of an additional cost of $12.7 million in the 2011/12 financial year. 4 These total costs reflect the 3.8% reduction to reflect the return to work assumptions. 4
Cost estimates based on a 1 April 2014 implementation date 8. As 1 April 2012 has passed, the costs have been recalculated for a 1 April 2014 implementation date. The method for calculating the costs has not changed. To ensure consistency of estimates is maintained we have presented forecasts based on a five year financial year basis as above, beginning the forecasts in the first year where higher costs will hit (this is in the last three months of the 2013/14 financial year). Table 2: Estimated cost 1 of proposals by financial year (1 April 2014 implementation) ($M) 3 Financial years 2013/14 2 2014/15 2 2015/16 2 2016/17 2 2017/18 2 Existing scheme (14 weeks) $169.85 $174.93 $180.16 $185.57 $186.93 Additional PPL of 4 weeks (Introduced 1 April 2014) Additional PPL of 8 weeks (Introduced 1 April 2015) Additional PPL of 12 weeks $179.57 $234.21 $291.93 (Introduced 1 April 2016) 1 Figures are before tax and estimates are based on the 2011/12 financial year. 2 Increase in average ordinary time weekly earnings estimated at 3% per year. 3 These estimates are an upper bound, given that not all recipients will take the full 26 weeks. 4 Amounts in brackets include a reduction of 3.8% to reflect a return to work assumption $339.57 $349.76 (326.67) 4 (336.47) 9. The total cost of the Bill introduced from 1 April 2014 is estimated to be an additional $322 million over the implementation period until the 2014/15 financial year and an additional $500 million over a five year forecast period until the 2017/18 financial year. 5 The total costs are greater than over the comparative forecast period basis for a 1 April 2012 implementation date as the base year costs are estimated to grow at 3% per annum. Summary of Estimated Offsetting Costs Early Childhood Education subsidy 10. The Ministry estimates that potential savings on the ECE subsidy resulting from an extra 12 weeks of PPL would be approximately 13 million per annum from the third year, following full implementation. 5 Again, these total costs reflect the 3.8% reduction to reflect the return to work assumptions. 5
Impact on Tax 11. Infometrics Ltd (Infometrics) estimated the additional tax paid by PPL recipients as a consequence of extending PPL. This assumes an additional $2 million in tax revenue in the first year of the proposal, increasing to $8 million per annum in the third year when fully implemented. 12. Inland Revenue has estimated that there could be an additional $5 million per annum from additional tax revenue from temporary employees filling in for PPL recipients from the third year. Reduced benefit payments 13. The Ministry estimates that there could be savings of $2.4 million per annum from reduced benefit payments as a result of beneficiaries replacing PPL recipients from the third year. These figures are based on 40% of PPL recipients positions being replaced, with 20% of the replacement percentages filled by beneficiaries. See paragraphs 47 to 52 below for the Ministry s comments on these and alternative assumptions. Impact on Working for Families 14. Inland Revenue estimates there is no net impact on Working for Families tax credits using the assumption under Scenario 1 (refer paragraph 31). The additional tax credits paid to families who take extended leave instead of returning to work is offset by the reduced tax credits to families who claim additional PPL payments and do not change their plans. Estimated total offsetting cost 15. Overall, the Ministry considers that the maximum potential savings that could be calculated to offset the total additional cost of extending PPL, following full implementation, would be approximately $28.4 million. 16. The increased expense for the estimates in Table 1 and Table 2 in the final year shown above is approximately $138.7 to $149.5 million. Therefore the net additional cost is $110.3 to $121.1 million per annum. 6
ANALYSIS OF EARLY CHILDHOOD EDUCATION SUBSIDY OFFSETTING COSTS OF EXTENDING PAID PARENTAL LEAVE Impact of policy change 17. The savings from the Early Childhood Education (ECE) subsidy funding that could accrue if the period of PPL were to be extended by 12 weeks were estimated for the previous Report. The calculations assumed that not all of the parents of 4-6 month-olds, who would otherwise have worked, will take up parental leave because of its extension to this group. Two scenarios were presented (Scenario 1 and Scenario 2) and these have been repeated below to provide context. Further request to calculate ECE savings using upper bound estimate 18. A further request from the Committee was to calculate ECE savings using the same assumption as that used in the original overall cost estimates (i.e. an upper bound based on all PPL recipients taking up the extra 12 weeks of PPL). An additional scenario (Scenario 3) has been calculated, as detailed below. 19. The Ministry considers the return to work patterns in Scenario 1 (based on the Linked Employer-Employee Dataset) to be the most likely. Therefore potential savings on the under-1 ECE spend are approximately 13 million per annum from the third year, once the scheme is fully implemented. The Ministry s workings and the three scenarios are presented below. Growing up in New Zealand study 20. The Committee also requested that the data from the Growing up in New Zealand (Growing Up) study on use of ECE be included in the ECE estimates. The Ministry referred to the Growing up data for the first report. Following further analysis of the data, it considers that the Growing Up estimates are consistent with the Ministry of Education (MoE) figures and the 2009 Childcare Survey. 21. The Growing Up report found that 35% of mothers reported that in the previous month their child was looked after at regular times during the week by someone other than a parent for more than eight hours per week. Of these, 40% reported that the main type of care used was a day-care centre/kōhanga Reo/Pacific early childhood centre. Therefore, overall 14% of children aged 9 months were receiving ECE for at least eight hours per week. 22. MoE estimated that 13.7% of under 1 s were enrolled for an average of 18.4 hours per week (2010 figure). The 2009 Childcare Survey estimated that 12.9% of under 1 s were in formal ECE for an average of 12.1 hours per week. 23. The Growing Up data accounts for an at least estimate of hours, rather than an average. The difference in average weekly hours between Growing Up data and MoE Education Counts data arises largely from 7
including average Playcentre hours, which are much lower (and funded at lower rates). Forecast spending takes factors such as this into account. Other differences are most likely due to sample differences. Early Childhood Education (ECE) participation 24. A relatively low proportion (13.7% according to MoE data or 14% for Growing up data) of children aged less than one year participate in formal ECE. Just over 20% of these are aged between four and six months, and just under 80% are aged between seven and twelve months. Very few enrolments are for children under four months. ECE funding subsidy 25. The ECE subsidy funding rates for children aged less than two years of age range from $6.84 to $12.09 per child per hour, depending on the type of ECE service attended. This subsidy is paid for up to 30 hours a week. 26. The average weekly hours of attendance of children under one were 18.4 in 2011. Based on this figure, the average weekly funding subsidy paid for a child under one would range from $125.86 to $222.46. 27. Children attending ECE for 30 or more hours a week would attract subsidy funding of between $205.20 and $362.70 a week. Reduction in ECE costs 28. Extending PPL from 14 to 26 weeks is expected to lead to a reduction in participation in ECE by under 1 s. 29. It is difficult to estimate precisely what the likely impact would be. To obtain an estimate we have to make a number of assumptions. Firstly, how recipients return to work patterns will change as a result, and secondly, what percentage of current ECE costs are attributable to PPL recipients. 30. Information on return to work patterns of PPL recipients is available from the Linked Employer-Employee Dataset. Figure 1 shows the percentage of recipients that were working in each of the 12 months after they start receiving PPL in 2007. About 10% of recipients are working four months later, 33% are working five months later and 40% are working six months later (Crichton, 2009). Scenario 1 31. Assuming that many of those who returned to work between 4 and 6 months delay this by 3 months and that some of those who returned to work after 6 months also delay their return to work by 3 months, gives a 25% reduction in the total number of weeks worked. This is referred to in Scenario 1 and is illustrated in Figure 1 below. 8
Figure 1: Percentage Working (Scenario 1) Percent 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 Months after starting PPL 14 weeks 26 weeks (scenario 1) Scenario 2 32. A conservative estimate is obtained if we assume that the percentage who returned to work after 6 months is unchanged. This gives a 14% reduction in the total number of weeks worked by recipients when their child is under 1 year. This is referred to as Scenario 2 and is illustrated in Figure 2 below. Figure 2: Percentage Working (Scenario 2) Percent 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 Months after starting PPL 14 weeks 26 weeks (scenario 2) 9
Scenario 3 33. Assuming that no one returns to work during the first 6 months and that some of those who currently returned to work after 6 months delay their return by 3 months, gives a 33% reduction in the total number of weeks worked when the child is under 1 year. This is referred to as Scenario 3 and is illustrated in Figure 3 below. Figure 3: Percentage Working (Scenario 3) 34. The following shows the projected spend on ECE for under 1 s in the next 5 years. Estimated ECE spend on Under-1s ($m; excl.gst) 2012/13 2013/14 2014/15 2015/16 Forecast under-2 spend $266.1 $276.4 $283.8 $289.0 Under-1 share of 0-1 hours 23% 23% 23% 23% Estimated under-1 spend $61.2 $63.6 $65.3 $66.5 Notes: Under-1 share is based on 2011 and 2012 RS61 censuses of ECE services 35. Not all of the current expenditure on ECE for under-1 s will be on children whose parents received PPL. There is no information available on this, so we have assumed that 80% of the current spend is on children whose parents received PPL. 10
36. Tables 1 to 3 below give the estimated cost savings based on the returns to work rates and correspond with Scenarios 1 to 3 outlined above. Table 1. Estimated ECE savings from extending PPL to 6 months ($m; excl.gst) Scenario 1 2012/13 2013/14 2014/15 2015/16 Estimated savings on under-1 spend $12.2 $12.7 $13.1 $13.3 Notes: Assuming there is a 25% reduction in the number of weeks worked by PPL recipients when their children are under 1 year and 80% of current ECE spend for under-1's is on PPL recipients Table 2. Estimated ECE savings from extending PPL to 6 months ($m; excl.gst) Scenario 2 2012/13 2013/14 2014/15 2015/16 Estimated savings on under-1 spend $6.9 $7.1 $7.3 $7.4 Notes: Assuming there is a 14% reduction in the number of weeks worked by PPL recipients when their children are under 1 year and 80% of current ECE spend for under-1's is on PPL recipients Table 3. Estimated ECE savings from extending PPL to 6 months ($m; excl.gst) Scenario 3 2012/13 2013/14 2014/15 2015/16 2016/17 Estimated savings on under-1 spend $16.1 $16.7 $17.2 $17.5 $18.0 Notes: Assuming there is a 33% reduction in the number of weeks worked by PPL recipients when their children are under 1 year and 80% of current ECE spend for under-1's is on PPL recipients 11
OTHER POTENTIAL SAVINGS ASSOCIATED WITH EXTENDED PAID PARENTAL LEAVE Impact on Working for Families Entitlement 37. Around 40% of PPL recipients also claim Working for Families tax credits. For some families the extension of PPL will have no impact on their entitlement, as family income is below the abatement threshold and the family already receives the maximum entitlement. For some families, income will drop as the extension will result in less paid employment and more paid leave. These families will be able to claim additional tax credits. If the parent was not intending to return to work after 14 weeks, and does not change the length of their unpaid leave, then PPL extension would result in an increase in family income and a reduction in the amount of tax credits received. 38. A parent can continue to receive the in-work tax credit when they are on PPL. If they have a full-time working spouse then the family would continue to qualify regardless of the extension in PPL. The extension would mostly impact on sole parents receiving the in-work tax credit. This results in a small increase in the cost of paying the in-work tax credit. 39. Using the assumptions in Scenario 1 above, Inland Revenue estimate there is no net impact on Working for Families tax credits. If the assumptions are varied the estimates range from a cost of $3 million to savings of $5 million a year. Impact on Tax 40. The costings provided in the Infometrics report included an adjustment for impact on tax. There are two distinct impacts: the increase in tax revenue from the extended paid parental leave payment the reduction in tax collected on wages and salary from parents not returning to work. 41. The income distribution of parents extends higher up the income scale than the maximum received on PPL. There is no data to indicate that those currently returning to work between 3 and 6 months are weighted towards the lower end of the income distribution or that those who take up the extension would be weighted towards the lower end. Therefore the tax paid on salaries will, on average, be expected to be higher than the tax paid on PPL. A person who decides to not return to work and instead takes longer leave would result, on average, in a decrease in tax collected. 42. However, not all PPL recipients would have returned to work in the 3-6 months after starting leave. The tax forgone will only be on a percentage of those that take up the extension who otherwise would have returned to work. For those who would otherwise have been on unpaid leave, the extension of PPL would see an increase in tax collected. Infometrics 12
estimate that the net outcome is extra tax of $2 million in the first year of the proposal, increasing through to $8 million per annum in the third year when fully implemented. (The Infometrics estimate was based on the original upper bound estimate, rather than the updated estimate with a return to work assumption. We consider that the differences are unlikely to be material.) 43. Inland Revenue have also considered the possible increased tax revenue from personal income tax from temporary employees filling in for the parent for the additional 12 weeks leave. Once the scheme has been fully implemented Inland Revenue estimate the additional tax revenue from temporary employees filling in for the parent could range from approximately $5 million a year (if 40% of vacancies are filled) to $10 million a year (if 80% of vacancies are filled). In addition to assumptions about the number of vacancies filled, the estimates are also sensitive to assumptions of the level of wages paid to temporary staff. The figures here assume wages equivalent to those earned by PPL recipients. Impact on Unemployment Benefit and DPB payments 44. Officials have previously advised that while there may theoretically be some offsetting benefit savings from extending PPL if unemployed people take up temporary contracts to fill paid leave staff gaps, and/or some sole parents decide not to resign and come onto the domestic purposes benefit (DPB) as a consequence of the extra entitlement, it is likely that any such offsetting savings would be modest. There is also insufficient evidence/data to be able to make such a calculation. 45. The Committee requested that savings be calculated based on a number of assumptions: Please cost two scenarios on the range of cost savings possible when PPL positions are filled by those on either unemployment benefit or Domestic Purposes Benefit. Both scenarios need to be premised on the return to work figures established in the 2009 Crichton review of PPL. Scenario 1 assumes 80% of PPL positions are replaced. Give a "high end" cost saving scenario based on 80% of those people previously being on a benefit and a "low end" based on 20% of them previously being on a benefit. Scenario 2 assumes that 40% of the PPL positions are replaced. Give the same "high end" and "low end" estimates for this scenario. 46. Officials have calculated the potential cost savings from these scenarios, on the basis of the assumptions in the above request, as shown by the following equation: Total savings = average benefit weekly payment x number of people on PPL x number of positions replaced x proportion of replacement people from a benefit x duration of replacement 13
47. Officials consider, however, that these assumptions, particularly the replacement rate assumption for Scenario 1 and the high end proportion of positions replaced by beneficiaries, are unlikely to be borne out, for the reasons discussed below. 48. The PPL Evaluation in 2007 found that 48% of employers disagreed and 45% agreed with the statement In our organisation, we prefer to reallocate work across existing staff when someone goes on parental leave, rather than employ someone to temporarily fill the role. This suggests that replacement rates are more likely to be around the assumption in Scenario 2 than Scenario 1. 49. The evaluation of PPL in 2006 is the most recent comprehensive assessment of the profile of who is taking PPL. As MSD does not have detailed information about the number of beneficiaries that take up PPL cover positions, any assumptions about replacement rates by beneficiaries will involve judgments. 50. Based on the comparison of the profile of current beneficiaries (from MSD administrative data, which is not collected for this purpose, so should be treated as an indicative result only) with PPL recipients in the table below, officials consider that the replacement rate from beneficiaries is likely to be low. 51. Most significantly, the PPL evaluation showed that the majority of PPL recipients were in managerial or professional positions, and were tertiary qualified. The percentage of beneficiaries with comparable experience and qualifications is significantly lower. 52. Of the two Scenarios calculated below, officials consider that Scenario 2 is more likely than Scenario 1, but even that may be an over-estimate of the proportion of PPL cover positions being filled by a beneficiary. 53. Other comparisons of the characteristics of PPL recipients with beneficiaries are not possible based on the available datasets and would require bespoke research. Table 1: Comparison of characteristics of PPL recipients with beneficiaries PPL evaluation MSD administrative data Managerial or professionally employed 44-51% 13-17% Tertiary qualified 55% 42% 54. In addition, this calculation is sensitive to: what level of benefit payment is saved for each beneficiary that covers a PPL position. For the purposes of these calculations, a weighted average (based on recipient numbers) of the current Unemployment Benefit and Domestic Purposes Benefit rates (excluding tax) has been used. This is 14
disproportionately influenced by the DPB rate and is likely to be an overestimate. the number of additional weeks of PPL taken on average by parents. Officials consider that Scenario 3 from the estimated ECE savings is a realistic assumption for this component of the calculation. Adopting different assumptions will result in higher or lower estimates. Table 2: Calculation of potential benefit savings Scenario 1 high end Scenario 1 low end Scenario 2 high end Scenario 2 low end Average benefit weekly payment $270.23 $270.23 $270.23 $270.23 Number of people on PPL (annual) 26,000 26,000 26,000 26,000 Number of positions replaced 80% 80% 40% 40% Proportion of replacement people from a benefit 80% 20% 80% 20% Duration of replacement (additional weeks) 4.27 4.27 4.27 4.27 Total savings (annual rounded to nearest dollar) $19,185,588 $4,796,397 $9,592,794 $2,398,198 15
HEALTH BENEFITS AND SAVINGS ON HEALTH FROM BREASTFEEDING 55. The Ministry of Health has collated information about PPL in relation to breastfeeding. A paper prepared for the Health Committee shows that there has not been an overall increase in breastfeeding rates since PPL was introduced but within those rates, there has been a increase in the percentage of women who are exclusively and fully breastfeeding. Due to the observational nature of the data it is not possible to determine cause and effect and identify with certainty that changes in the rates of exclusive and full breastfeeding are directly attributable to PPL. 56. The table below provides a breakdown of breastfeeding rates during 2000-2011/12. Year 6 weeks 3 months milestone 6 months milestone milestone Exclusive/ Full (%) Partial (%) Exclusive/ Full (%) Partial (%) Exclusive/ Full (%) Partial (%) 2000 65 16 50 19 18 41 2001 64 16 51 19 19 40 2002 65 15 52 18 21 38 2003 67 15 55 15 24 35 2004 68 14 55 15 24 35 2005 67 15 55 15 25 35 2006 66 16 55 16 25 35 2006/07* 65 17 54 17 26 35 2007/08* 64 18 54 17 26 34 2008/09* 66 17 55 17 26 34 2009/10* 66 18 54 19 26 36 2010/11* 66 18 54 19 25 37 2011/12* 66 19 55 19 25 38 Note. * = breastfeeding rates are based on years from 1 July to 30 June. Source: Based on Plunket data. 57. Reasons for initiating breastfeeding, switching to partial breastfeeding, and stopping breastfeeding are multifactorial. The Growing Up in New Zealand Study found that mothers stopped breastfeeding for a variety of reasons. Of the 52 per cent of infants in the study who were no longer being breastfed at nine months, insufficient milk supply was the most common reason for stopping breastfeeding (mentioned by mothers of 38% of these infants). Other reasons mentioned included a perception that the infant was not satisfied by breast milk alone (mentioned by 32%), and returning to work and expressing being inconvenient or not possible (mentioned by 19%). 6 58. Further information reported on the rates of admission to hospital for babies between 0 6 months of age do not show a decrease in the areas 6 Morton SMB, Atatoa Carr PE, Grant CC, et al. (2012). Growing Up in New Zealand: A longitudinal study of New Zealand children and their families. Report 2: Now we are born. Auckland: Growing Up in New Zealand. 16
of lower respiratory tract infections or gastroenteritis. The graph below shows the admission rates over time. Publically funded discharges per 1000 live births 60 50 40 30 20 10 0 Paid Parental Calendar Year Acute Bronchiolitis Gastroenteritis 59. The graph shows that the rate of acute bronchiolitis in infants aged 0-6 months has increased although there was a period after the introduction of PPL (2002-2008) when the rate dropped; the rate of gastroenteritis has remained the same. 60. The observational nature of the data collected by the Ministry of Health does not demonstrate cause and effect. It is not possible to interpret the data without extensive research to determine causative factors including any link to breastfeeding or PPL. The Ministry of Health is not aware of any research that has been done on the New Zealand hospital admission data in relation to the effect of PPL. 61. A report commissioned by UNICEF in the United Kingdom Preventing disease and saving resources: the potential contribution of increasing breastfeeding rates in the UK 7, used quantitative models to estimate the cost savings associated with increased breastfeeding rates but no similar work has been done for the New Zealand health environment. Consequently, it is not possible to estimate the effect of an increased duration of breastfeeding on the current costs of providing health care to infants. Stillbirths and miscarriages 62. The Committee requested information on numbers of women getting PPL following a miscarriage or stillbirth. There is no data available that links still births or miscarriages with uptake of PPL. We would assume that uptake of PPL following a miscarriage would be rare. 7 Renfrew MJ, Pokhrel S, Quigley M, McCormick F, et al. (2012). Preventing disease and saving resources: the potential contribution of increasing breastfeeding rates in the UK. UNICEF United Kingdom 17
63. Figures below show data on stillbirths and miscarriages. The data on miscarriages is only the number of women experiencing a miscarriage as a hospital admission, i.e. it does not include those women who have experienced a miscarriage and have not had a hospital admission. Stillbirths Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Number 390 393 505 403 409 471 555 482 471 Hospital Admissions for Miscarriage Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Number 3693 3534 3347 3324 3138 3118 3257 3125 3180 18
Appendix 1 Original Cost Estimates 64. The original cost estimates calculated by the Ministry of Business, Innovation and Employment (the Ministry) were based on a financial year from 1 July to 31 June, although these cost estimates did not explicitly account for a start date of 1 April 2012. The original cost estimates are reflected in Table 1. 65. The estimates were based on the current cost multiplied by the proposed maximum duration. The rates are an upper bound given that, as the duration of the scheme increases, there is likely to be some drop off in numbers as people decide not to take the full 26 weeks. 66. It is difficult to anticipate the behavioural response of paid parental leave (PPL) recipients if the scheme were to be extended. The evidence does indicate, however, that there would likely be a high take-up, given that data in 2008 showed that 40% of PPL recipients were working six months after the start of their PPL (DoL and Statistics NZ), and the majority of women would like to return to work when the baby is 12 months old but return earlier because of financial pressures (DoL evaluation, 2007). 67. It was estimated that this Member s Bill proposal would cost up to an additional $288 million through to June 2014/15 and an additional $439 million through to June 2015/16. Operating expenses would be increased by approximately $46 million in 2012/13, $95 million in 2013/14 and $147 million per annum following full implementation in 2014/15. Table 1: Estimated cost 1 of proposals for July to June financial years ($M) 3 2011/12 2012/13 2 2013/14 2 2014/15 2 2015/16 2 Existing scheme (14 weeks) Additional PPL of 4 weeks (Introduced 12/13) Additional PPL of 8 weeks (Introduced 13/14) Additional PPL of 12 weeks (Introduced 14/15) $156.60 $161.30 $166.10 $171.10 $176.20 $207.40 $261.10 $317.80 $327.30 1 Figures are before tax and estimates are based on the 2011/12 financial year. 2 Increase in average ordinary time weekly earnings estimated at 3% per year. 3 These estimates are an upper bound, given that not all recipients will take the full 26 weeks. 19
Appendix Two Comparing total cost estimates 68. The Ministry s original cost estimates were intended to provide an initial estimate of the extra fiscal costs associated with extending the PPL provisions as proposed. The Ministry also commissioned an independent assessment of the estimated costs, and a calculation of the income tax revenue implications by Infometrics Ltd. Their report has been previously provided to the Committee. 69. The Infometrics report states that their general conclusion is that the Ministry s estimates provide a reasonable first approximation to the potential fiscal costs. They also undertook further broad estimates based on a number of assumptions such as constant price estimates (resulting in lower figures) and significant increases in uptake (resulting in higher figures). 70. The Ministry and The Treasury do not support either the higher or lower estimates provided by Infometrics. For example, one of the lower figures that is commonly referred to, that of $166 million over three years, is based on constant prices. As discussed below, this is not standard practice and does not provide an accurate reflection of the cost of the extension, or the costs beyond the phasing period. 71. These extra estimates, combined with requests to calculate the proposal in a different way and with a different start date (refer lines 6 and 7 of the table below) means there are a number of different estimates that have been calculated. Caution needs to be taken to ensure we are not, for example, comparing a three year phased total with a four year phased total, or four year full implementation total. 72. Below is a comparative analysis of a number of cost estimates that have been presented on the basis of different methods and implementation details. 20
$m 2011/12 extra costs 2012/13 extra costs 2013/14 extra costs 2014/15 extra costs 2015/16 extra costs Total over 3 years phased Total over 4 years phased 1. Original MBIE Estimates 2. Infometrics Replication of MBIE 3. Infometrics Higher Uptake Estimate 4. Infometrics Replication of MBIE with tax considerations 5. Infometrics Replication of MBIE discounted at 7% 6. Original MBIE estimates with 1 April 2012 start 0 46 95 147 151 288 439 0 23 70 119 145 212 357 0 31 97 174 221 302 523 0 22 65 110 135 197 332 0 21 57 88 98 166 264 12 56 105 145 151 318 469 Shifted Implementation Date: Phased implementation totals are based on different financial years: $m 2013/14 extra costs 2014/15 extra costs 2015/16 extra costs 2016/17 extra costs 2017/18 extra costs 7. Original MBIE estimates with 1 April 2014 start Total over 3 years phased 10 59 112 154 162 335 520 Total over 4 years phased 73. Grey lines are totals referred to in this response. White lines are previous cost estimates that have been presented. Highlighted yellow cells are commonly cited totals. Lines 2-5 show the Infometrics replication of the Ministry s original estimates, a higher uptake estimate, a tax consideration estimate, and a constant price estimate. The Ministry and the Treasury do not support the cost estimates in lines 2-4. The differences between line 1 and line 2 are not significant. A tax assumption as is built into line 4 above has been discussed separately in this paper. Line 5 takes a 2012 constant price estimate using a 7% discount rate. This method is inconsistent with standard practice for referencing costs of policy changes. Cabinet makes decisions based on cost estimates over the forecast period, and these are not discounted. Line 6: All of the previous estimates are based on a financial year beginning 1 July, but do not take into account the impact of the implementation date beginning three months prior to the start of a financial year. These estimates are still on a financial year basis but take this fact into account for a 1 April 2012 implementation date. We therefore support this updated version of the original cost estimates. 21
Line 7: This estimate responds to a further request from the Committee to calculate a 1 April 2014 implementation date. To allow comparisons between three and four year phased implementation totals, these totals begin from the first year of additional cost impact (in 2013/14). i.e. unlike the estimates from Lines 1 6, by 2015/16 the proposal will only partly be implemented and the true cost impact will not be felt. These estimates are the most likely to be misrepresented when comparing to any previously quoted estimates so need to be interpreted with caution. 22