Today, several more economists have come out against the baby bonus. As I have written previously (most recently here), the baby bonus is a public expenditure sink with no economic rationale. As reported in The Australian, it appears that Professors Ross Guest and Bob Gregory agree with me.
Last financial year, it cost the government $1.16 billion, a figure that will climb as it increases to $5000. With more women having their first babies in their 30s, and richer women having more children, the baby bonus is increasingly ending up in the hands of wealthier families.
Despite Treasury’s concerns, Wayne Swan this week ruled out any change to the baby bonus and said Australia’s middle class did not receive too much welfare.
But economist Professor Gregory said the baby bonus remained an inefficient means of improving fertility and the Government should consider treating all family welfare measures as “a whole”.
“If it was put in place to get more children, then it’s unbelievably expensive. Every new mother gets it, but you might only get a few extra babies that wouldn’t have been born regardless,” said Professor Gregory.
Of course, just eliminating the baby bonus may create distortions to birth timing and so it would need to be done with care. I suggest the following:
(i) the government cancels the rise in the baby bonus for 1st July, 2008 and instead lowers it back from $4,187 to $4,000. That will save around $250m per year.
(ii) the government moves the bonus as a tax rebate rather than a straight out payment.
(iii) then the government puts a gradient on the baby bonus based on income level reducing it to $3,000 for the highest income earners (on the same basis as other child-based payouts) with a straight line based on income back to $4,000 for those paying no tax;
(iv) then, from 1st July, 2009, it starts reducing the income threshold.
Or, at least something like this. My point is that we can eliminate the baby bonus without too much, if any, political cost.