Austria: Childcare allowance replaces parental leave benefit

From the beginning of 2002, the existing parental leave benefit provided through social insurance funds was replaced by a more general childcare allowance provided by the family fund. While the government considers that it has fulfilled one of its most important election promises and regards the new allowance as a milestone on the way to creating a more "family-friendly" society, the policy's critics view it as an expensive benefit that does not achieve what it sets out to do.

Background

The most recent federal elections were held in Austria in October 1999, and a governing coalition between the conservative People's Party (OVP) and the controversial right-wing Freedom Party (FPO) took office in February 2000. Reform of the parental leave benefit (Karenzgeld) system had been a heated election campaign issue - all the political parties agreed that reform was necessary, but there were clear divisions about what shape the reform should take. See box below for the details of the system in force until 31 December 2001.

In essence, the OVP and the FPO wanted to abandon the existing system, which they considered favoured working parents, and replace it with a system that was more widely available. This would entail a reclassification of the benefit, which was linked to the unemployment section of the social insurance system. One of the OVP election slogans proclaimed "parental leave benefit for everyone" (Karenzgeld für alle) - emphasising the fact that the new benefit was available not just to working parents. The FPO emphasis was on the child "care" aspect of the proposed changes.

The social democrats did not present a unified approach. One of their proposals, which was supported by the trade unions, was that the parental leave benefit legislation should be supplemented by income-related elements. This would help counter the effect of the significant drop in income imposed on middle- and higher-income families through an enforced career break following the birth of a child. Other options presented by the social democrats included a general increase in parental leave benefit and the creation of a (lower) substitute benefit for non-working parents.

Soon after its inauguration, the new government presented a wide-ranging package of reforms in the area of social policy, of which the reform of the parental leave benefit system was an important aim - the previous government had wished to introduce reform in this area but had been prevented from reaching agreement by internal divisions. Other areas of proposed reform included public pension insurance, public health insurance, unemployment insurance, employment legislation, employer social insurance payments and social partnership.

A decade of change

The latest reform of parental leave benefit follows a decade of changes to the system, which, overall, have resulted in tougher eligibility conditions and a reduction in the value of the benefit. Having increased the length of time that parents could claim the benefit from one to two years in 1990, at the same time as allowing fathers to claim, new, more restrictive conditions were attached in 1996. Under these, benefit for the full 24 months was only available to families where both parents participated in the scheme - for one person in a couple, the maximum length of time was reduced to 18 months. Single parents, however, were still permitted to take advantage of the full two years of benefit.

The monetary value of the benefit was also reduced. In 1995 the status of an additional payment to single parents and low-income families (erhöhtes Karenzgeld) was changed from a grant to a loan, at the same time that it was renamed "parental benefit supplement" (Karenzgeld-Zuschuß). In a single-parent family, the responsibility of repayment was allocated to the father, regardless of which parent the child lived with.

These cost-saving measures were so successful that the family fund (Familienlasten-Ausgleichsfonds) accumulated a substantial surplus, assisted by a declining birthrate. This was despite the increase of direct payments for children (as distinct from the new childcare allowance) by €36 for each child to between €156 and €196 per month, depending on the child's age.

The new childcare allowance

As mentioned above, one of the key measures promised by the new government in 2000 was the reform of the parental leave benefit system. The introduction of a new childcare allowance and the abolition of parental leave benefit was flagged in the coalition agreement between the OVP and the FPO, and the necessary legislation was passed in June 2001. This was accompanied by a debate in which the parliamentary opposition and the trade unions voiced their concerns, although it did not become as heated as the debate that took place during the 1999 election campaign. A series of surveys showed that government policy on this issue was supported by the majority of the population. One controversial element of the new system is the introduction of a clause stating that benefit recipients are only protected against dismissal if they do not work for more than 13 weeks a year.

The law introducing the childcare allowance (Kinderbetreu-ungsgeldgesetz) came into force on 1 January 2002. It is estimated that the number of people claiming the new allowance will rise to 175,000, compared to the 75,000 who claimed parental leave benefit. The cost to the exchequer will amount to around 0.3% of GNP. The table below shows how the two benefits compare.

Predicted impact of the new legislation

It is clearly too soon to assess the impact of the new legislation. Thus far, there are many unanswered questions, one of which is what effect the new legislation will have on female employment. The government considers that the higher limit set on additional income without damaging a parent's right to claim childcare allowance should facilitate combining career and family responsibilities, and it anticipates that this should have a positive effect on female employment. On the other hand, the unions consider that women's career prospects will be damaged by the "temptation" for them to remain outside the workplace for longer than was possible under the previous legislation.

Although the unions welcome the higher limit set on additional income, this has been tempered by concerns that new dismissal rules mean that, if childcare allowance beneficiaries are employed for more than 13 weeks in a year, they lose their protection from dismissal. Unions view this as undermining the advantages of the higher limit for additional income - parents are allowed to earn more money in addition to the benefits they receive, but, if they make use of this opportunity, they lose their protection from dismissal.

The main criticism levied by the unions and the opposition parties is, however, the potentially politically divisive effect on the workforce, since the new system significantly favours non-working families and the self-employed. Instead of spending so much on the implementation of a new system, the unions feel that the money could be better spent on improved childcare provision in the community, more financial support for parents to compensate for their loss of income while taking care of their children, and extra help for parents trying to get back to work after taking advantage of parental leave benefit. Far from assisting parents to achieve a positive balance between career and family, critics maintain that the new system may actually worsen the situation for some families.

Employers' organisations have not offered an opinion on the eventual outcome of the new legislation. Their initial reservations about the high cost of the childcare allowance have not resulted in any significant protests.

It remains to be seen whether the issues of childcare allowance and parental leave benefit will be debated in the campaign for the next federal elections, due in 2003. It is clear, however, that the new legislation has not provided the last word on how government can assist parents faced with the challenge of combining the demands of working with bringing up a family.

Childcare and parental leave benefits compared