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Tony Abbot's maternity leave fiasco
Gerard Jackson
Tony Abbot's proposal to impose a maternity levy on those businesses that have the audacity to generate a taxable income in excess of $5 million is another example of the Liberal Party's incompetence, opportunism and absence of economic credentials. One should have thought that Abbott's scheme would have at least generated some comment about the nature and even the need for maternity leave schemes, particularly from our rightwing. Not a bit of it.
Maternity leave is never free. Now there are basically three ways in which these schemes can be funded: Government's can legislate them, pay for them out of taxes or firms can voluntarily undertake to implement their own. The problem for those politicians who want to buy votes by forcing companies to pay maternity leave is that economic laws do exist and violating them can have very unpleasant consequences.
Now economics uses marginal productivity theory to explain wage rate determination. According to this theory there exists a tendency in a free market for every worker to earn the full value of his marginal product which in turn will equal the wage rate (the gross wage including all oncosts).
It naturally follows that should for any reason labour costs exceed this rate unemployment will emerge. This is why smarter politicians either try to subsidise maternity leave directly through the firm or pay for it out of taxes. One doesn't need to be a trained economist to see that these financial manoeuvres are an attempt to avoid the unemployment consequences of maternity leave policies.
Those with some knowledge of economics will immediately realise that in a truly free labour market unemployment would not emerge because government imposed labour costs would be factored back into lower net pay while leaving the actual wage rate (gross wage untouched).
However, politicians like to give the impression that there really is such a thing as a free lunch so they have no intention of allowing net wages to be adjusted downwards in response to any 'social justice' legislation. (Over time inflation or a continuing increase in productivity will in any case make the same adjustments.) Hence their shabby attempts to conceal the destructive aspects of their legislation.
It ought to now be clear that firms that run their own maternity schemes will only do so if they can factor the cost into a lower net pay thereby ensuring that individual labour costs do not exceed market rates. Therefore our reasoning leads to the ineluctable conclusion that forcing firms to pay maternity leave would have a similar effect on the demand for female labour as do effective minimum wage rates on the demand for youngsters.
Peter Costello, former Treasurer, decided to slag Abbott for straying from the free market fold. (Pretty rich coming from an economic illiterate). Costello is a member of discredited H. R. Nicholls Society, the outfit that wrecked the case for free labour markets and is therefore in no position to criticise Abbott. Now for some curious reason the notoriously arrogant Mr Costello has got it into his skull that he is the free market's white knight. God help us.
It never even occurred to this pompous twit and his fellow incompetents in the HRNS that maternity leave involves a fundamental moral question. Why should an employer be held in anyway responsible for the welfare of his employee's family? The Spanish Scholastics were abundantly clear on this issue and far more perceptive than any member of our so-called rightwing. As Luis de Molina (1535-1600) categorically put it, so long as an employee is being paid the market rate for his services
he cannot demand something more, or if he does not receive it secretly appropriate the goods of his master for his service.....the owner is only obliged to pay him the just wage [market rate] for his services considering all the attendant circumstances, not what is sufficient for his sustenance and much less for the maintenance of his children and family. (Cited in Alejandro A. Chafuen's Christians for Freedom: Late-Scholastic Economics, Ignatius Press, 1986, p. 125.)
Asking the right questions seems to be an impossible task for the HRNS, which probably explains its astonishing degree of ineptitude. So I'll ask another question: do people exist to serve the economy? Believe it or not Treasury head Ken Henry seems to think they do. According to this fanatical Keynesian mothers should be in the workforce serving the economy rather than be at home raising their children. Alexander Gray — economist and free marketeer — truly had the number of men like Henry when scathingly condemned
The repellent doctrine that man exists for the production of wealth, rather than that wealth exists for the use of man, here finds its classical utterance. (Alexander Gray, The Development of Economic Doctrine: An Introductory Survey, Longmans, Green and Co, 1948, p. 189).
Mr Henry's genius is boundless. How does he know that it is much better for mothers to be press ganged into the labour force, as if raising children is not hard enough? Because the Treasury has developed a "wellbeing index". This is the same bloody mob that couldn't foresee the US and Australian recessions and yet they claim to have the ability to make personal decisions for hundreds of thousands of mothers. Yikes! The next thing we'll hear is that Henry is running a coven and practising sorcery. He might as well because his economics is bloody useless.
It would never occur to this clapped out Keynesian that the mercantilist policies that he promotes has contributed mightily to this welfare mess. Come to think of it, it wouldn't occur to that bunch of conceited clowns at the HRNS either. It's because of the likes of Henry and the HRNS that economics is getting a bad name among the public.
Gerard Jackson is Brookesnews' economics editor
BrookesNews.Com
Monday 22 March 2010