Everyone loves babies. Creating, having and bringing up a new baby is the most rewarding, frustrating and life-enriching thing most people will ever do. Everyone wants to see a new baby. Politicians want to be next to them.
I have been blessed to have five babies with my wife, and, spoiler alert, they do grow up to be teenagers. I love all my children and love is the only thing that gets bigger when you share it with more people.
So it is very sad to hear that Australians are having fewer babies. This week we found out that Australia’s birthrate has fallen to just 1.5 per woman. Our birthrate is now at western European levels, and we would soon be experiencing population decline if not for the record number of migrants we are taking in.
Not everyone can have a child and not everyone wants to have children. And that is fine. It is sad, though, when people who can and want to have children cannot because of economic constraints.
And economics seems to be behind the rapid drop in our birthrate over the past generation. When the Howard government left office in 2007, Australia’s birthrate was above 2.0 per woman. We had one of the highest birthrates in the developed world.
In the mid-1990s, Australians were having about 250,000 babies a year. By the end of Howard’s term, Australians were having 300,000 babies a year, even topping the 1960s, post-war, baby boomer birth numbers.
Famously, this baby boom came after Peter Costello told everyone to have one for mum, one for dad and one for the country.
I do not think Peter Costello’s words were much of an aphrodisiac, but his budgets may have been. In the mid-1990s, Australia put aside about 2 per cent of our GDP to support families. After Howard and Costello created a new family benefits system, 3.3 per cent of GDP went to helping families.
Following the global financial crisis hangover, family benefits were cut and we now devote only 2.3 per cent of GDP to family benefits. No wonder then that young Australians are finding it harder to find the financial resources to start families.
The good news is that good government policies can turn this dire situation around.
A decade ago, Hungary’s birthrate had plummeted to 1.2 births per woman. The Hungarian government went on a family support blitz. It gave tax rebates for having children. It provided interest-free loans to buy your first home. If you had two children, 30 per cent of the loan would be forgiven, and if you had three children the whole loan was wiped off. If a mum had four or more children, she would never pay income tax again.
Hungary’s policies worked. Hungary’s birthrate has boomed to 1.6 per woman (now higher than Australia’s). And that was not all the positive news. The number of divorces and abortions halved, and female employment participation increased. Paying no tax after having four children probably helped!
Australians might not be ready to provide tax-free status to mums, but there are changes to our tax system that could help.
One of the big barriers for young people to having babies is that our tax system treats people as individuals not families.
So, when a mum or dad leaves the workforce to help care for a young baby, you lose access to two tax-free thresholds and lower tax rates. This is a massive cost.
For example, a single-income family with two kids who earns $150,000 a year pays $36,838 a year in tax. A double-income family with two incomes of $75,000 each, with two kids, pays $26,576 in tax. These two families have the same income and the same number of kids but the single-income family pays over $10,000 a year more in tax.
More than half of developed countries allow parents to share some or all of their income for tax purposes.
This would help reduce tax for families, especially when their babies are young and they want to look after them at home.
If we do not lift our birthrate back to Howard government levels we would need to take in 100,000 more migrants a year to reach our projected levels of population over the next few decades.
And that is likely to worsen our crippling housing shortage, making it hard for young Australians to have babies.
We should have a tax system that is good for babies because babies are good. It is time we taxed people as families because strong families make for a stronger nation.
