More incentive issues than you can throw a cat at

I’m a day late but this article in The Australian shows just how many distortions are being introduced as a result of changes to the baby bonus policy. Let me count them:

  1. Means testing: distortion for high income earners to bring births forward into 2008
  2. Confusion over means testing rules: distortion for marginal high income earners to bring births forward into 2008
  3. Move to fortnightly payments: potential incentive for cash strapped low income earners to bring births forward into 2008
  4. Means test based on post-birth income: distortion to keep household income below $75,000 in first six months or $150,000 in first year. Earn a little bit more and you lose $5,000
  5. No income reconciliation: mitigates 4 by telling people that they can earn more or less without penalty but does this mean there is a means test?