tag:theconversation.com,2011:/nz/topics/baby-bonus-1958/articlesBaby bonus – The Conversation2017-08-15T02:03:04Ztag:theconversation.com,2011:article/815632017-08-15T02:03:04Z2017-08-15T02:03:04ZWhat the baby bonus boost looks like across ten years<p>The baby bonus did its job, encouraging people to have more children at a time when fertility rates were low, our research finds. <a href="https://theconversation.com/australians-want-more-children-than-they-have-so-are-we-in-the-midst-of-a-demographic-crisis-81547">Given Australian men and women desire 1.5 more children than they actually have</a>, it might be time to consider policies like this again.</p>
<p>Fertility rates have fallen from 2.02 babies per woman in 2008 to 1.81 in 2015. At the same time, mortality rates have declined. All this means the proportion of people in Australia who are of working age is decreasing.</p>
<p>Since 1976, the average number of babies born to a woman throughout her reproductive lifetime in Australia hasn’t been enough to maintain current population. In 2001 the total fertility rate sank to 1.74 and in July that year the first child tax refund was introduced. </p>
<p>This initial policy was considered ineffective and in May 2004 the Australian government announced a new maternity payment, a universal cash payment - later known as the baby bonus, offering parents A$3,000 on the birth of a child. </p>
<p><a href="http://www.formerministers.dss.gov.au/13064/baby-bonus-changes-pass-the-house/">This amount was subsequently increased</a> in July 2006 and July 2008 to A$4,000 and A$5,000 respectively. However, the payment was eventually reduced to A$3,000 for a second or more birth July 2013 and finally, it was removed altogether in 2014.</p>
<p>Although the baby bonus was not explicitly a policy to encourage people to have kids, the introduction of the policy was accompanied by the often quoted rhetoric by then Treasurer, Peter Costello:</p>
<blockquote>
<p>One for mum, one for dad and one for the country.</p>
</blockquote>
<p>The payment seemed to affirm that Australian society valued children and bigger families and that there was a need to reduce the financial barriers for those wanting to start or expand their family. </p>
<p>Using data on all Victorian births from 1983 to 2014, our study considered whether the baby bonus has had a sustained effect on the fertility rate over the policy’s 10 year history. We attempted to disentangle the effects of the policy from the impact of other economic influences and underlying demographic trends on fertility.</p>
<p>Other research has identified <a href="https://pdfs.semanticscholar.org/ee92/6f71ddb7d8d6b7030041f009815e7a24694c.pdf">short term timing effects on births</a> from the policy and moderate increases in <a href="http://catalogue.nla.gov.au/Record/4807124">childbearing intentions</a> as a result of its introduction. But we found a significant increase in birth rates commencing ten months following the announcement of the baby bonus. And this increase appears to be sustained over the policy’s lifetime.</p>
<p>We conservatively estimate 24,000 additional births were associated with the baby bonus policy. Acknowledging that economic conditions can affect families’ decision to have children, we controlled for fluctuations in labour market conditions and economic expectations. We also analysed whether there was any differences in our results by age or the number of children the parents already had.</p>
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<p>We found young women in particular increased the number of children they had relative to the prevailing trends of their age groups in number of children. This showed us that the fertility increase wasn’t based solely on older women’s decision to make up for lost time and have the children they had previously delayed having. </p>
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<p>The increase in the rates of women having more than one child also suggests the policy encouraged families to expand. Our result accounts for a change in the timing of women having children as we measure only sustained increases in births which were not matched by a corresponding decline in later years.</p>
<p>It’s not surprising that people respond to incentives, even for the highly personal decision of when to start a family and the size of that family. What is surprising is the strength of the response of women having children as a result of the study, relative to the lifetime costs of child, including housing.</p>
<p><a href="https://aifs.gov.au/publications/fertility-and-family-policy-australia/5-australian-government-family-policies">The reasons this policy</a> gained traction with the public was due to it being simple, transparent, and not based on the working circumstances of parents. This simplicity, coupled with publicity on the policies introduction meant parents knew exactly what they were entitled to without complex calculations. </p>
<p>The baby bonus, by boosting fertility rates, will in turn affect long term population structures. However, the cost of the policy is another story.</p><img src="https://counter.theconversation.com/content/81563/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The baby bonus did its job, encouraging people to have more children at a time when fertility rates were low.Sarah Sinclair, Lecturer in Economics, RMIT UniversityAshton De Silva, Associate Professor of Economics, RMIT UniversityJonathan Boymal, Associate Professor of Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/103202012-10-25T19:30:57Z2012-10-25T19:30:57ZTime to put baby bonus myths to bed<figure><img src="https://images.theconversation.com/files/16885/original/hkt79wvh-1351132540.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Gillard government has pared back the baby bonus for second and higher order children from $5000 to $3000.</span> <span class="attribution"><span class="source">Flickr\Brandon Doran</span></span></figcaption></figure><p>The Gillard government’s plan to cut the baby bonus for second and subsequent children from $5000 to $3000 from July 1 2013 raises issues of equity and demographic change. Some have welcomed what they see as a cut to middle-class welfare; Shadow Treasurer Joe Hockey has hinted at adverse demographic effects. However, neither position is correct.</p>
<p><strong>Is the baby bonus middle-class welfare?</strong></p>
<p>Since the introduction of the <a href="http://www.humanservices.gov.au/customer/services/centrelink/parental-leave-pay">Paid Parental Leave scheme</a> on 1 January 2011, a two-tier approach has applied to payments to Australian resident parents with new children: primary carers (usually mothers) who worked most of the 13 months before the birth may claim Paid Parental Leave and the remaining parents the lesser amount of the Baby Bonus. Which types of parents will be affected by the cuts to the baby bonus?</p>
<p><a href="http://link.springer.com/article/10.1007/s12546-012-9089-2">In a recently-published paper in the Journal of Population Research</a>, I have examined the working patterns of mothers with young children. The percentage working among mothers with a child under five rose from 43.6% (in 2008) of mothers with Year 11 or less education to 68.3% of those with a bachelor’s degree. The average hours worked per week per employed mother also increased with higher levels of education. Mothers with larger numbers of children, the never married, and migrants from countries with languages other than English also would be more likely to claim the Baby Bonus in view of their lower post-birth employment rates. Clearly, parents claiming the baby bonus will be less wealthy on average than those eligible for Paid Parental Leave.</p>
<p><strong>A one-child policy?</strong></p>
<p><a href="http://www.abc.net.au/lateline/content/2012/s3616330.htm">On the ABC’s Lateline program Hockey remarked</a>; “the baby bonus actually is one of the incentives that has helped to make Australia a rare commodity in developed nations and that is a nation which has increased its birth rate over the last few years … The government seems to want to penalise anyone that has a second or third child. I think that worked quite well in China, didn’t it?”.</p>
<p>Australia’s total fertility rate rose from 1.73 in 2001 to 1.96 in 2008, before falling back to 1.89 in 2010. However, Australia was far from unique in seeing its birth rate rise over the pre-GFC period. Figure 1 shows the increases in fertility in England and Wales, France, New Zealand, Sweden, and USA. Most developed countries experienced birth rate upticks. Only a minority of these countries (including Norway, Italy, Poland, provinces in Canada, and, until recently, Spain) have had universal, flat-rate family benefits similar to Australia’s Baby Bonus. The birth rate increases have generally been due to other factors. Even in Australia, the pre-GFC increase in fertility was due more to other demographic and economic changes, and the effect of the baby bonus minor at most, as <a href="http://www.demographic-research.org/Volumes/Vol25/6/25-6.pdf">shown by my research with Professor Ross Guest from Griffith University</a>.</p>
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<img alt="" src="https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=363&fit=crop&dpr=1 600w, https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=363&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=363&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=456&fit=crop&dpr=1 754w, https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=456&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/16884/original/szs4579r-1351132032.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=456&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A cross-country comparison of total fertility rates over time.</span>
<span class="attribution"><span class="source">Nick Parr</span></span>
</figcaption>
</figure>
<p>The prevalence of one-child families has increased even after the introduction of the baby bonus. Census data shows that the percentage with one child increased from 13.2 in 2006 to 14.3 in 2011 among women aged 40 to 44 years. <a href="http://link.springer.com/article/10.1007/BF03031931">My research</a> shows one-child family sizes are associated with later ages for first births; pre-marital first births; marital dissolution; independent schooling; and migrants from East Asia. The prevalence of one-child families may continue to increase, but not because of the changes to the baby bonus.</p>
<p><strong>Is the birth rate too low?</strong></p>
<p>This begs the question: “too low for what”? Australia’s current birth rate is not too low to prevent future population growth. With this birth rate and migration of 180,000, a population of around 35 million in 2050 and around 50 million in 2100 can be expected.</p>
<p>What about the effects on age structure? A substantial future ageing of Australia’s population is inevitable. However, with higher fertility, the age structure would eventually become more economically advantageous than it would be with lower fertility — but only after about 50 years. In the shorter term, higher fertility creates an economically more challenging age structure. Do we care enough about distant future economic benefits to Australians, many of whom are yet to be born or to migrate, that we would prefer to bear the more immediate economic costs resulting from higher birth rates and see both current and future Australians subjected to the greater environmental challenges of a larger population?</p>
<p><strong>An issue of fairness</strong></p>
<p>Whether or not we like the fertility level, the proposed cuts to the baby bonus are unlikely to change it significantly. By cutting the baby bonus, the costs of the Gillard government’s lust to return to budgetary surplus will fall disproportionately on poorer families with young children. For this reason it is regrettable.</p><img src="https://counter.theconversation.com/content/10320/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Parr receives funding from the ARC, the NSW Department of Attorney General and Justice and the Institute of Actuaries of Australia.</span></em></p>The Gillard government’s plan to cut the baby bonus for second and subsequent children from $5000 to $3000 from July 1 2013 raises issues of equity and demographic change. Some have welcomed what they…Nick Parr, Associate Professor in Demography, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/45282011-12-04T19:38:47Z2011-12-04T19:38:47ZThe baby bonus failed to increase fertility - but we should still keep it<figure><img src="https://images.theconversation.com/files/6088/original/fabbe34f314f8596-1322785509.jpg?ixlib=rb-1.1.0&rect=75%2C45%2C925%2C613&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A prospective voter - will the Gillard government's paid maternity leave scheme affect the birth rate?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Although the introduction of the baby bonus in 2004 was designed to provide financial assistance to families, a clear pro-natalist intent was also apparent. </p>
<p>Treasurer Peter Costello’s quip is now famous: “If you can have children it’s a good thing to do - you should have one for the father, one for the mother and one for the country, if you want to fix the ageing demographic”.</p>
<p>Now the Gillard government has announced the baby bonus will be cut back by $400 from next September. </p>
<p>So did the baby bonus affect the birth rate? And would the abolition of this benefit have much effect? The answer to both is a resounding no.</p>
<p>Australia’s total fertility rate rose from 1.76 births per woman at the introduction of the baby bonus to 1.96 in 2008, before falling back to 1.89 in 2010. However, the beginning of the upward trend in the birth rate in 2001 predates this policy initiative. Most (79%) of the increase between 2004 and 2008 can be accounted for by increases in fertility rates among women aged over 30.</p>
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<img alt="" src="https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=935&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=935&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=935&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1175&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1175&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6104/original/7ac09a23bbb365c0-1322795108.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1175&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Peter Costello’s baby quip is now famous.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>Following the introduction of the baby bonus, birth rates for women under 30 initially decreased, then increased between 2006 and 2008, before falling back to pre-baby bonus levels in 2010. Australia’s increase in fertility has coincided with broadly similar patterns in the United Kingdom, Ireland and New Zealand. France, the Scandinavian countries and much of southern, central and eastern Europe also have experienced increases. </p>
<p>My research (with Ross Guest from Griffith University), recently published in the journal <a href="http://www.demographic-research.org/">Demographic Research</a>, shows the baby bonus and the other changes to family benefits contributed only a very minor increase to fertility rates.</p>
<p>Instead the evidence points to the influence of combination of demographic and economic changes. </p>
<p>One of these is the legacy of the past trend of postponing childbirth to later ages. Put simply, past decreases in fertility rates were exaggerated by the effects of fertility postponement, and more recently a replacement of previously postponed births has pushed the birth rate back up. </p>
<p>The prevailing strength of the economy also has contributed to the fertility rate increase (whether post GFC changes can explain the post-2008 fall in fertility is an intriguing question).</p>
<p>As well as increases to family benefits, the two main policy levers by which governments may attempt to increase birth rates are increasing assistance with child care costs and increasing parental leave. Given that the annual maximum payment is currently $7,500 and that its receipts to parents will cumulate over the child care using ages, the effect on birth rates of the child care rebate, introduced in 2005, has attracted surprisingly little attention. </p>
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<img alt="" src="https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=892&fit=crop&dpr=1 600w, https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=892&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=892&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1120&fit=crop&dpr=1 754w, https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1120&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/6114/original/b68e45101625a702-1322799260.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1120&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The child care rebate may have had a greater effect than the baby bonus.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>The steepening of the fertility rate increase between 2006 and 2008 would appear to fit better with the plopping of child care rebate cheques into bank accounts than with the introduction of the baby bonus. My joint research with Professor Guest suggests the effect of the child care rebate on fertility probably has been greater than that of the baby bonus. </p>
<p>Clearly it is far too soon to assess what effect on fertility, if any, the introduction of the Government’s Paid Parental Leave Scheme in January this year has had. According to a <a href="http://www.springerlink.com/content/x747333p032700np/">review of the international literature</a> by <a href="http://soci.ucalgary.ca/profiles/a-gauthier">Anne Gauthier</a>, some studies have found a small positive impact of such policies on fertility, and others no effect at all.</p>
<p>Costello’s playful “lie back and think of the ageing population” justification for introducing the baby bonus does raise the question of which birth rate and population growth trajectory is the best for Australia. This is a complex philosophical question requiring definition of what “population wellbeing” means. </p>
<p>Is it narrowly economically-defined or should wider environmental and social considerations be included? Whose “wellbeing’ should be considered? Is it just those people currently alive and in Australia or should consideration extend to future generations to come, or even to species other than humans? And how should we measure and weigh-up the complex effects of population change on "population wellbeing”? </p>
<p>The quote from Costello suggests concern over the effects of population ageing, a process which would be slowed if birth rates were to increase. However higher birth rates also increase population growth, and thus may fuel urban congestion, biodiversity loss, and carbon emissions. </p>
<p>The current fertility rate may be seen as consistent with a relatively satisfactory balance between the competing goals of maintaining a manageable population age structure and a manageable growth rate. In view of the very limited effects of public policies, in any case, those who see the birth rate level as undesirable will have to lump it.</p>
<p>The arrival of children leads to new financial pressures and an increased value to parents of time away from work. Since the demographic effects of either increasing or decreasing it will be negligible, it is the non-demographic arguments which justify maintaining the baby bonus.</p><img src="https://counter.theconversation.com/content/4528/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Parr receives funding from an ARC Discovery Grant</span></em></p>Although the introduction of the baby bonus in 2004 was designed to provide financial assistance to families, a clear pro-natalist intent was also apparent. Treasurer Peter Costello’s quip is now famous…Nick Parr, Associate Professor in Demography, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/45002011-11-29T02:52:06Z2011-11-29T02:52:06ZSlimmed down surplus as Swan unveils mid-year budget: experts respond<figure><img src="https://images.theconversation.com/files/5982/original/swan2-jpg-1322533105.jpg?ixlib=rb-1.1.0&rect=68%2C40%2C1890%2C1259&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Wayne Swan is maintaining a slimmed down surplus for 2012-2013 - but storm clouds are rolling over the global economy.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The Federal Government is still aiming to deliver a slimmed down surplus next financial year, but has downgraded economic growth forecasts amid a slowing world economy and <a href="http://www.smh.com.au/world/european-recession-looming-oecd-20111128-1o38y.html">news</a> that Europe may already be in recession. </p>
<p>Announcing the government’s <a href="http://www.budget.gov.au/2011-12/content/myefo/html/01_part_1.htm">mid year economic and fiscal outlook</a>, Treasurer Wayne Swan said the 2012-2013 surplus would be $1.5 billion, down from $3.5 billion. This financial year’s deficit forecast has blown out to $37 billion, up from $22.6 billion. </p>
<p>To deliver the surplus, the government has unveiled a number of saving measures, increasing the public sector efficiency dividend by 2.5%, which could lead to up to 6000 public sector jobs. The Baby Bonus will also be cut, and funding to the higher education sector has been deferred. </p>
<p>Swan said Australia’s real GDP growth was now expected to be 3.25% in the current financial year, down 0.75% from initial budget projections in May. It is projected to be 3.25% in 2012-2013, down 0.5% from projections. </p>
<p>The cuts follows the release of the Organisation for Economic Co-operation and Development’s (OECD) twice-yearly global growth report <a href="http://www.businessweek.com/news/2011-11-28/oecd-reduces-growth-forecasts-blames-euro-doubts-economy.html">cutting global growth forecasts</a> and calling for European policy makers to deal effectively with its sovereign debt crisis. </p>
<p>Here’s what our leading academic experts make of it:</p>
<h2>John Vaz, Course Director-Master of Applied Finance, Department of Accounting and Finance, Monash University</h2>
<p>Let’s look at what is being proposed and the potential downsides from actions to “guarantee” a stimulus. As an old friend of mine in funds management used to say: if you want a guarantee, buy a washing machine. </p>
<p>Labor is acting like a bullied child with the insecurity to match. The austerity measures delivered by Treasurer Wayne Swan reek of political and personal interest – not national interest.</p>
<p>Fundamentally, Labor is dancing from the tune of the Opposition and the innate insecurity of Labor governments who want to be seen as good economic managers.</p>
<p>The record will show that in fact Labor governments (since Whitlam) have a good record of economic management and in fact have implemented major structural reforms – not to mention retirement savings reforms to prevent future fiscal problems. Put it in perspective, the forecast surplus is 0.1% of GDP.</p>
<p>The case to achieve a surplus in a pure economic sense cannot be made as the consequences of actions necessary to achieving a surplus are far more negative. The government cites a poor global position as the reason for taking this action when it is fact politically motivated.</p>
<p>If the global position weakens and China slows, thus impacting our economy, then the government may well be forced to execute a stimulus in a similar rush (to the last time when billions of dollars were wasted in short term quick projects) that will result in waste all over again. In fact, it could lead to a worsening of the budget position. </p>
<p>The proposed cuts, if they seek to make the public service more efficient, can be supported. If they seek to reduce unnecessary middle class welfare for those who dont need it, then that is also a good thing. But what cannot be supported is cuts to services that reduce employment particularly when services are relied upon in the economy more broadly. </p>
<p>The Opposition is doing its usual lathering about cutting the public service – a good no-brainer strategy that has bad no-brainer consequences. The Opposition will say the government is too soft and not cutting the public service enough. </p>
<p>Savings of $11.5 billion are proposed over four years will by and large come from taking money out of the economy that was put in to stimulate it. </p>
<p>Taking a cut to expenditure will create more uncertainty and mixed messages about the economy. How credible is it to say we can achieve a surplus of 0.1% while we are headed into potentially dangerous territory due to global economic conditions? </p>
<p>If things worsen globally (which the government says it is concerned about) then the government’s fiscal position will worsen. Having already made cuts, will need to think about stimulus. </p>
<p>The government’s own forecasts are contradictory to the reasons they have put forward for the cuts. “The weak and fragile economic position of the major advanced economies presents considerable risks to the domestic economic outlook.” </p>
<p>Yet they say we will have close to trend growth (in spite of the global ecnonomic concerns) and yet they are putting in place cuts that may weaken this. Are we over-reacting? The government’s own chart (below) shows how relatively better we are positioned in debt terms and why we need to maintain the economy at its current level of activity, rather than chase this surplus carrot set up by the opposition and reflect the governments political insecurity rather than pure economic motives.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=354&fit=crop&dpr=1 600w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=354&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=354&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=444&fit=crop&dpr=1 754w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=444&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/5985/original/budgetchart-png-1322537095.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=444&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source"> Mid-Year Economic and Fiscal Outlook</span></span>
</figcaption>
</figure>
<p>Just ask any retailer about the two speed economy if they think the economy needs to have spending cuts applied.</p>
<h2>Sinclair Davidson, Professor of Institutional Economics at RMIT</h2>
<p>While the government has cut expected tax revenue and also made some cuts to middle class welfare, I’m not convinced they have done enough to ensure a budget surplus in 2012-13. </p>
<p>Right now there is a wafer-thin projected surplus of $1.5 billion. I suspect come May next year the government will have to cut more spending. To be fair, they don’t have to announce all they have in mind right now, but we can be sure that they will be having to look for more savings in the coming months. </p>
<p>I suspect we will see a lot more cutting in the May budget next year. The Baby Bonus has been cut by $400 per baby, down to $5000 and also indexation will stop. Right now the indexation stops at three years, but I suspect that indexation will remain stopped. Bear in mind the government brought in a different scheme for paid maternity leave, so there is probably more room for cutting there.</p>
<p>What I found interesting is the 4% efficiency bonus on public servants (by increasing the efficiency dividend by 2.5%) which means 5000 - 6000 public service jobs will be cut. I suspect this is above the natural attrition rate, so they are talking about shrinking the public service. It remains to be seen where these cuts are going to occur; I think that’s quite a big change. Whether they have the stomach to pull it off, I don’t know. </p>
<p>Some of the funding promised to universities has been delayed into the future. They are going to keep the rewards for enrolling economics students, but everything else has been deferred into the future. That might cause a bit of pain in the university sector as everybody is already facing tough budgets next year.</p>
<p>I think the government has the right attitude; I don’t know whether they will actually deliver a surplus. We have to give Wayne Swan the credit for not giving into the temptation to put returning to surplus off for another year. </p>
<h2>Mike Rafferty, senior research analyst, Workplace Research Centre, University of Sydney </h2>
<p>Most economists know that a budget surplus or deficit for any one year is an accounting residual of no real economic importance. But as these things go, in order to prove his and Labor’s economic credentials Wayne Swan has elevated the achievement of a Budget surplus into a political campaign, and a major test of Labor’s economic management.</p>
<p>The trimmed down global growth forecasts mean revenues from income and corporate taxes will be down, and expenditure on things like unemployment benefits will go up. That makes the surplus target tougher to achieve.</p>
<p>The mid-year review has a few revenue measures, addressing tax concessions, and expenditure measures, addressing benefit levels and tests. It also signals some cuts in future public sector numbers, which raises issues about the government’s capacity to deliver services.</p>
<p>Appropriately enough, however, the mid-year review does most of its work by playing with the budgetary accounting conventions that produce the net position.</p>
<p>How is this done? Well the review brings some revenues into the current year making this year’s deficit bigger. It also pushes some expenditure back or forward a year. Net result is the very small surplus forecast of $1.5 billion for 2012/2013.</p>
<p>Should we be concerned at what looks like tricky behaviour to achieve next year’s surplus?</p>
<p>If the fiscal residual was meaningful, perhaps we could support the Opposition’s expected indignation at Labor’s creative accounting. But it simply isn’t that important, except that both parties have elevated it to such political prominence. Elevated or sunk to new levels of political populism?</p>
<p>The biggest problem is both political parties know that one year’s surplus or deficit is not a very good ways of assessing economic management. But both have dug such big holes in honour of the budget surplus that even the idea of stopping digging bigger ones is hard to accept. </p>
<p>If you want to know what the political parties really think about the Budget and this mid-year review, look for the politicians without the shovels.</p>
<h2>George Aryrous, Senior Lecturer, School of Social Sciences and International Studies, University of New South Wales:</h2>
<p>It is a political mini budget but with economic consequences, and that is the problem.</p>
<p>It is this obsession with a budget surplus at any cost despite the cycle of the economic situation that is the political element. It seems to be a measure of political credibility but pursuing that and depending on how it is achieved, can have dramatic economic consequences.</p>
<p>I would agree with the position [that we should be expanding the economy at this point]. Given the success the government had with that approach just before the global financial crisis I am surprised they are not thinking along the same lines now.</p>
<p>They had the foresight and the strength of political character back then to not pursue a surplus and to spend ahead of the downturn to prevent it happening and it was a success and I would have thought they would have learned the lesson and perhaps pursued the same strategy this time around.</p>
<p>There is always scope at any point in the economic cycle for intelligent budget policies that remove distortionary taxes or subsidies to people who don’t really need them (like the Baby Bonus) but ideally that would be to re-direct that revenue, especially at a critical point such as now when we are looking toward a downturn, into spending that will keep the economy afloat rather than just seeing it as a net saving.</p>
<p>[The surplus] is meaningless because some of the judgements are so arbitrary, the timestamp that is put on different forms of spending and revenue income, things that fall before or just after June 30. It is pretty arbitrary so the fact that is $1.3 billion surplus or deficit doesn’t really matter, it is the general thrust of overall fiscal policy that is important.</p>
<p>And if the general thrust is towards more austerity and contraction at this time of the economic cycle then I think that is bad medicine.</p>
<h2>Associate Professor Steve Keen, School of Economics and Finance, University of Western Sydney</h2>
<p>It’s madness to be talking about cutting the deficit right now when the only thing that got us through the crisis the first time around was the huge deficit spending that Rudd did. That was worth about a $40 billion stimulus, or close to 4% of GDP, plus the first home lenders boost, as I call it, which was a really bad idea but it actually injected $100 billion of additional borrowed money into the economy. And then, finally, China kicked in - its stimulus package meant that they got an enormous boost in their demand for our imports. It was all those three things together that got us through.</p>
<p>Now those things are gone. Thank God the home owners scheme is gone, and the housing bubble is going into reverse. The government’s stimulus has ended, and going from deficit to surplus is going to be a negative impact and China’s stimulus seems to have petered out and we’re now getting negative manufacturing figures from China. </p>
<p>So all those things mean there are negatives coming our way and the government’s intention to return to surplus is simply impossible in the current circumstances. It’s insane. With the economy petering out they are still living in this mythical world where cuts to government spending actually stimulate the economy – and that’s sheer nonsense. They’ll be forced by circumstances to go back to deficit again. It points out how inane the political conversation is in Canberra when they’re focusing on getting back to surplus as if the economy’s booming, when it’s not.</p>
<p>It’s neoclassical economics; the same people who didn’t see the crisis coming dominate the Treasury, they dominate the Reserve Bank of Australia, they dominate the political advisors to the both main parties and they simply don’t know what caused the crisis. </p>
<p>They think it was what’s called an exogenous shock; they think the shock is over and therefore it’s time to go back to surplus again. They have absolutely no understanding of what caused the crisis in the first place. </p>
<p>If they cut the spending out now, rather than having one part of society - the private sector - reducing its debt levels, they’ll have two sectors doing it and we’ll go into a deeper funk. That’s simply the wrong policy right now.</p><img src="https://counter.theconversation.com/content/4500/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University and a senior fellow at the Institute of Public Affairs.</span></em></p><p class="fine-print"><em><span>George Argyrous, John Vaz, Michael Rafferty, and Steve Keen do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Federal Government is still aiming to deliver a slimmed down surplus next financial year, but has downgraded economic growth forecasts amid a slowing world economy and news that Europe may already…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityGeorge Argyrous, Senior Lecturer, UNSW SydneyJohn Vaz, Course Director Master of App. Finance, Monash UniversityMichael Rafferty, ARC Future Fellow 2012-2016, School of Business, University of SydneySteve Keen, Associate Professor, School of Economics and Finance, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.