Intergenerational matters
Why have we stopped reproducing? Does it matter?
For the last fifty years Australia’s birth rate has been below replacement levels and has fallen even further in recent years.
The graph below, of Australia’s total fertility rate (the number of births per woman), tells a strong story. Australians are having fewer children: in fact it has been below population replacement rate (estimated by the ABS and most demographers at 2.1 births) for the last 50 years. But for migration and the fact that we are living longer, Australia’s population would now be shrinking.
On average women are having fewer children, some women are choosing to have no children, and because women are having children later in life some leave it too late. That last factor is one reason that on average women report that they have had fewer children than they had intended. All three factors bring down our total fertility rate.
Some of the broad movements, and their probable causes, are evident in the graph. We see the 1945 to 1960 postwar baby boom – a boom that was initially explicable by the end of the Pacific War, and that was associated with a rapid rise in living standards, particularly improved housing. Then over the 1970s fertility fell: in this period contraception became more readily available, and more women were entering the workforce, but it would be rash to suggest that either is the causal factor of falling fertility. Then in around 2004 there was is an uptick, corresponding to, and perhaps partially responding to, the $3000 baby bonus, later to expand to $5000 by 2008, accompanied by Peter Costello’s exhortation to “have one for mum, one for dad, and one for the country”.
Pelin Akyol, Rose Khattar and Ali Vergili of the e61 Institute, drawing on HILDA data, look specifically at the effects of financial incentives for reproduction: Australia’s fertility decline: evidence and policy experience. They consider the effect of the Howard government’s tax refund introduced in 2002, which they conclude was poorly designed and had little discernible effect. But the 2004 baby bonus did have an effect, particularly among families with low income. They also looked at paid parental leave and were unable to find evidence that it had any incentive effect.
Akyol and Vergili also have a more detailed research note How financial incentives shape fertility in Australia.
Financial incentives are only part of the story. As the e61 researchers point out fertility decisions are shaped by multiple factors including financial pressures, career-family trade-offs, and access to child care. Their research reveals that the most important factors are “concerns about the cost of raising children and job security”.
Writing on the ABC website Daniela Pizzirani looks specifically at the influence of housing availability, quoting ANU’s Liz Allen who goes into the dynamics of housing costs. Because having children is expensive people are likely to delay reproduction while they accumulate funds to pay a house deposit. Also the life of a renter is not amenable to reproduction, particularly in a market dominated by opportunistic “investors” who have little concern for tenants’ interests over a long term. Children and parents get a better deal from child health services, child care, and early education if they are not having to move, which is why home ownership, or long-term rental arrangements, probably encourage people to reproduce.
Ben Phillips of ANU does some research on the cost of raising a child, published in The Conversation. He looks only at the direct costs incurred for children’s benefits. That means he does not consider the opportunity costs for parents who might take years off work or opt for lower-paying jobs in order to bring up children. He calculates the financial cost of bringing up a child to age 18. His figures aren’t discounted, but when I run a net present value analysis through his estimates and apply a discount factor of five percent I estimate the net present value of the cost of having two children is about $350 000. There is an opportunity for his PhD students to research the extent to which economists apply a “rational” approach to their decisions regarding mating and reproducing.
The policy question that this data on our falling fertility rate raises is “does it matter”? It’s part of a larger, and as yet unaddressed, question that should be put to the Australian people, in a long consultation about population policy. For a long time we have let immigration fill the growing gap between our own declining fertility and the concern among policymakers that we want to avoid the situation that has developed in countries such as Korea, Japan and Italy.
But is that a shared concern? And more basically why do we assume that we will always be able to attract skilled migrants? We may soon find that the skilled immigrants Australia and other “developed” countries try to attract have many more attractive options if they make their fortunes at home.
Our lopsided and unfair tax system
There is something weird and unfair in a tax system that requires young and productive workers to subsidize the lifestyle of the old and idle.
Robert Breunig of ANU’s Tax and Transfer Institute has a Conversation contribution: Taking from the young, giving to the old: how our tax system is letting us down. He confirms, with hard data taken from HILDA surveys, that “we are taking money from people at an age where they need it most and giving it back to them when they appear to need it less” to use his words.
The graph below, taken from his data, shows the net impact of income taxes, consumption taxes, pensions and superannuation concessions by age.
More significantly, this inequity is widening. To quote one of his pieces of data, “the average 75-year-old’s post-tax and transfer income 25 years ago was little more than 75 percent of an average Australian income. Today it equals the average Australian income”. He also covers the inequities in access to housing.
A related Conversation contribution – 5 charts that show how young Australians are getting screwed – by Intifar Chowdhury of Flinders University covers more intergenerational injustices, including HECS/HELP debt, general cost-of-living stress, psychological distress and loneliness.
What does it take to get the young out on the streets to complain about their parents?