Posted on August 6, 2008

Babies a Drag on The Economy, Report Says

Sue Dunlevy, Daily Telegraph (Sydney), August 6, 2008

FORGET those plans to have a third child for the country because further increases in the birth rate could harm the economy, the nation’s productivity watchdog has warned.

A major analysis of the nation’s increasing fertility rate said it was at its highest level for 25 years—but the Productivity Commission yesterday warned further increases may aggravate rather than solve the problem of the ageing of the population.

This is because it will shift women out of the workforce while they care for babies, depressing labour supply and reducing the taxation base as our population ages, the Daily Telegraph reported.

The small number of extra babies born would make little difference to the rate of population ageing, the commission said.

And the women having the babies would be exacerbating the financial impacts on the government of the ageing of the population because the tax breaks offered to parents to have children occur up front, while the cost savings of a bigger working population and bigger tax base from extra children are deferred until they are of working age.

The commission’s views were of particular interest as next month it is expected to hand down a much anticipated report into whether the nation should adopt a paid maternity leave scheme.

It found the $5000 baby bonus, which is expected to be rolled into any new paid maternity leave scheme, had had only a partial role in lifting the fertility rate.

The baby bonus represented only a 1 per cent reduction in the lifetime costs of a first child, which would cost its parents at least $385,000 over its lifetime.

“Any significant fertility effect from the bonus would suggest the presence of short-sightedness by parents about the lifetime costs of raising children,” the report said.

The commission said the Family Tax Benefit payments, averaging around $5000 per family per year, were more likely to have had a bigger impact on lifting the national fertility rate.

These payments cut the cost of children by 8 per cent a year and the generosity of these benefits increased significantly after 2000.

More than 285,000 births were registered last year, the highest level in 25 years.

The commission said this was mainly a catch-up effect as women deferred childbirth to later in life.

“Having reached older ages, they are now having these postponed babies,” it said.

The fertility rate would be even higher but for the effects of high house prices and better educated women, the commission said.

More highly educated women can earn good money if they work rather than stay at home to care for children and this had depressed the birth rate.

The higher cost of housing meant it took longer to afford a house, which has delayed child-bearing.