Watchdog Warns More Babies Would Harm Oz Economy

by Rajashri on Aug 7 2008 2:40 PM

The Australian productivity watchdog has warned that a further increase in the birth rate would actually harm the economy. Couples may soon be asked to shelve plans for a third baby in the Oz.

While a major analysis of the nation's increasing fertility rate indicated that it has reached at its highest level for 25 years, the Productivity Commission has cautioned that a further increase may aggravate the problem of the ageing of the population instead of solving it.

That's because it will actually make the women move out of the workforce for taking care of the babies, depressing labour supply and reducing the taxation base as the population ages.

However, the commission said that the small number of extra babies born wouldn't make much of a difference to the rate of population ageing.

Also, new mothers would be further worsening the financial impacts on the government of the ageing of the population because the tax breaks offered to parents to have children occur up front.

On the other hand, the cost savings of a bigger working population and bigger tax base from extra children are put off until they are of working age.

The warning comes in line with the report expected next month, which delves into whether the nation should adopt a paid maternity leave scheme. It found that 5000 dollars baby bonus, which is expected to be rolled into any new paid maternity leave scheme, didn't have much of a role to play in lifting the fertility rate.

However, the baby bonus equalled to only a 1 per cent reduction in the lifetime costs of a first child, which would cost its parents at least 385,000 dollars over its lifetime.

"Any significant fertility effect from the bonus would suggest the presence of short-sightedness by parents about the lifetime costs of raising children," the Daily Telegraph quoted the report, as saying.

According to the commission, the Family Tax Benefit payments (on average 5000 dollars per family per year) were more likely to have had a bigger impact on lifting the national fertility rate.

With these payments, the cost of children was cut by 8 per cent per year and the generosity of these benefits increased significantly after 2000.

Over 285,000 births were registered last year, the highest level in 25 years, and the commission referred to it as a catch-up effect as women deferred childbirth to later in life.

"Having reached older ages, they are now having these postponed babies," said the commission.

The commission said that the fertility rate would escalate further but for the effects of high house prices and better educated women.