Time to put baby bonus myths to bed

The Gillard government has pared back the baby bonus for second and higher order children from $5000 to $3000. Flickr\Brandon Doran

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.

Is the baby bonus middle-class welfare?

Since the introduction of the Paid Parental Leave scheme 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?

In a recently-published paper in the Journal of Population Research, 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.

A one-child policy?

On the ABC’s Lateline program Hockey remarked; “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?”.

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 shown by my research with Professor Ross Guest from Griffith University.

A cross-country comparison of total fertility rates over time. Nick Parr

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. My research 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.

Is the birth rate too low?

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.

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?

An issue of fairness

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.