The Liberal Party’s Parental Leave proposals open a new agenda area within the election campaign. The proposals seek to combat lower birth rates and to offset unfairness by sharing the costs of raising children which are increasingly considered to be “public goods”.
Fertility is falling across the western world. In most western countries, including Australia, the average family is projected to have less than two children. Current average world fertility rates, at 2.36 per female, are half of their 1950 levels. Depopulation fears are particularly acute in Russia, Germany, Italy and East Asia.
The reduction in family size is a recognised concomitant of affluence. Today, the only areas with rapid population growth are the very poor African countries.
Islamic states, even though they might promote child numbers and in some cases place cultural limits on female activities other than motherhood, are facing birth rate declines similar to those of the west. Iranian women are already having fewer than 1.7 children, and the North African nations, Turkey, and even Saudi Arabia are fast approaching this.
The overwhelming determinant of fertility rates is the trade-offs people (women more than men) attach to rearing children rather than having greater leisure time and income for other things.
Lower birth rates are evidence that the modern world has massively tilted the balance against having children.
Even though higher income levels make children more affordable, the cost involved is much increased. Thus, a few centuries ago, children would make an economic contribution to their upkeep by the age of six or seven and provide net income benefits by the time they hit their teens. Nowadays children are often dependent well into their twenties. And the expenses of educating and otherwise supporting children are far higher relative to incomes than in previous times. Even without regulatory pressures to incur such high costs, social pressures demand them.
Declining population levels offers the reverse spectre of previous overpopulation fears – how will the growing number of elderly be supported by a reducing share of the productive age groups?
All affluent nations have responded with subsidies to parents.
In terms of total expenditure on family policy across the OECD, the US provides least support (0.6 per cent of GDP) with Sweden at 3.2 per cent near the top and Australia at 1.8 per cent about average. Family benefit schemes doubtless have an effect on fertility – the European nation with the highest spending, Sweden, has a fertility rate at only 1.9 per woman, markedly above the 1.4 recorded by Germany. But assessing the effect of family support measures is difficult – low spending America is the only OECD nation with a fertility levels approaching the 2.1 replacement rate.
Child support policies also claim a productivity improvement dimension in easing mothers’ re-entry into the workplace. Though this may be true, the many regulations over child care centres and credentialism required of child care workers seriously offset any benefits of assistance. And absent from the Liberal’s policies are any incentives for the recipients of support to return to work.
Fairness, population concerns and productivity enhancement considerations add to the politics of family incentive payments offered by the Coalition, Greens and the ALP.
The Liberal Party’s proposed new incentives to women, 26 weeks on current wages, are clearly more generous than the ALP’s. Claimed to cost a net additional $2 billion a year, Mr Abbott’s proposals have been criticised on many dimensions.
Parental Leave incentives compete in priorities with disability support, more education spending, unemployment relief and, yes, reduced taxation. There is an infinite demand for spending on worthy causes for public support and it would be preferable if these were pre-designated and a financed out of a pre-determined level of expenditure rather than each one being separately assessed without being prioritised.
Moreover, every expenditure has adverse consequences. These include encouraging people to deliberately place themselves into situations where they can obtain the benefit.
Tax impositions that discriminate between businesses are particularly disturbing. The Liberal Party’s Parental Leave measures are largely financed by an impost on 3000 large companies (out of the total of 750,000 firms). Many of the firms attracting the increased tax will re-arrange their affairs to minimise payments, which at one and the same time means reduces the level of collections and introduces business inefficiencies.
Incongruously, the Liberal’s policy says that the existing voluntary payment of parental leave by many larger companies gives them an advantage over smaller businesses. It maintains that paid parental leave will provide a level playing field to smaller businesses at no cost to them! Ambiguously, in view of its “level playing field” claim, the policy also argues that a company tax cut will provide a further boost to the competitiveness of small and medium sized businesses.
Discriminatory taxes based on the size of a business will, at best, lead to less efficient producers displacing others and more than likely entail additional costs as firms inefficiently restructure to avoid the more punitive tax rate.