Baby bonus: even as it exits poor implementation continues

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Sigh. Heavy sigh. Sometimes you have to wonder whether anyone is listening. The baby bonus will finally be scrapped with the $5000 payment (already changed to means tested and paid over time) being replaced essentially by its predecessor. The 10 year policy is over.

But when will it be over?

“Outlining a plan to deliver a tiny surplus of less than $1 billion in the third year of the budget cycle, after a larger than expected deficit nearing $20 billion for 2012/13, the Treasurer has revealed the $5000 baby bonus will be scrapped from March 1, 2014, to be replaced by a lower $2000 supplement payable only to recipients of Family Tax Benefit (A).”

In other words, if your kid is born on the 28th February 2014, you get $5000 and, if it is born one day later, you either get $2000 or nothing depending on your income. What this means is that, to the extent that scheduling birth timing is possible, parents will have a huge incentive to move their deliveries forward. You don’t want to play around with health outcomes just to implement a policy but there you go.

Is birth timing manipulable? Yes, you can plan an inducement or a caesarian although some have denied it. When there are economic incentives do parents react by changing birth timing? Yes. How do we know? Well, when the baby bonus was introduced on the 1st July 2004, the same carrot was dangled in front of parents: that time to delay births. That lead to that date having the largest number of births in recorded Australian history (which probably means, Australian history). And then again on the 1st July 2006, we saw a similar surge. This was all carefully studied, and written up in accessible form. It is literally the textbook case now of bad policy implementation. At the time, I criticised the Coalition government who continually did this of poor economic management, a term which here means doing something that you know in the face of overwhelming evidence that will create bad incentives. Sadly, in countries around the world governments have continued to implement policies that change birth timing and economists have studied their continual bad impact.

So now we have the same thing coming. It isn’t hard to imagine why. The Government knows it will impact on people’s birth timing decisions. So why is this not scrapped today? Well, there is an election coming up is the cynical response. But the real cynical timing date would be the 7th June 2014 which would mean everyone pregnant by 14th September would still be eligible for the baby bonus. As it is, you can still get the baby bonus if you conceive by the 8th June or so this year. In other words, Wayne Swan would need to be some sort of aphrodisiac because you may need to get started right away.

That aside, this is poor economic management. As I wrote 7 years ago:

Burying your head in the sand on the reality of this is not going to make good fiscal management or health economics.

I have no issues of getting rid of the baby bonus although I will note that it was claimed to be Australia’s current parental leave policy. But how you implement these things tells you about what sort of economic managers you are dealing with.

[Update: when births were delayed, birth weights went up so it was unclear that the health outcomes were necessarily poor. This time around the reverse could happen and low birth weight is not generally considered good in the short- or long-term for babies. To be sure, doctors will caution parents on this but they shouldn’t be put into the position of having to tell parents why they might miss out on a significant amount of cash.]

8 Responses to "Baby bonus: even as it exits poor implementation continues"
  1. Couldn’t this be solved as easily as making the bonus predicated on a doctor confirming a pregnancy before a certain date, rather than the specific day the child is born? There’ll still be a rash of close births, I suppose, but the gestation times should be the same as usual.

  2. Can’t help but notice that your coauthor on the JPE paper is now in a position where, one might hope, he could provide some input into the policy formation process. I’m not sure what to make of that fact, but it is what it is.

  3. Poor implementation? But you seem to actually say “it’s bad policy, don’t do it.” Ditto for your 2006 post. Therefore, we could guess that policy-makers were not listening in 2006, but perhaps now they are. Turn that frown upside down!

  4. I seem to recall from a footnote in your original study that there were about 8 more infant deaths in that period than one would expect from the number of births (though the statistical significance of this finding was borderline). What do you think, would moving forward be more or less dangerous for the health of mother and baby than delaying, and should we hence expect more or fewer than 8 unnecessary deaths as the anticipated consequence of this policy?

  5. The easy solution—which in fact is not ruled out by the quoted policy announcement—would be for all existing baby bonus payments to stop on March 1, 2014. Rather than creating a payment cliff of $3,000 on that date, this would create an (almost) smooth gradient over 6 months starting in Sept. 2013, since the baby bonus is paid in 13 fortnightly instalments. Problem solved.

  6. A person that has a child based on money is worthless this is Australia’s most shameful moment in history as we all watch on television prams rolling onto the path of a train babies in wheelie bins the list goes on and for those that survive the birth a born with parents with ice cold hearts oh boy we look forward to that generation seriously I am sure they considered that outcome? ummmm NO!

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