This paper examines the horizontal equity of Australia’s system of family payment for newborns. Using microsimulation modelling this research illustrates the higher levels of disposable household income that can be achieved by mothers eligible for Parental Leave Pay (PLP) compared to almost identical ineligible mothers. Under 2017-18 policy settings eligible mothers with private incomes between zero and $90,000 in the year following birth are able to achieve disposable incomes more than $5,000 greater, on average, relative to otherwise similar ineligible mothers. This income disparity amounts to 10-19% of the private income of ineligible mothers with private incomes under $47,000.

The simulations demonstrate how recent reforms to family payments for newborns that reduced the generosity of maternity payments have made the extent of the horizontal inequity associated with PLP far more pronounced than it was at the time of its introduction in January 2011. The paper concludes with a discussion of whether the horizontal inequity that is inherent in a payment with eligibility determined by pre-birth employment, funded by taxpayers rather than the contributions of recipients, can be justified given PLP’s policy objectives.