Budget can be used to counter the fall in the fertility rate
After decades worrying that Australia’s rapid population growth was putting too much pressure on our already crowded cities, the COVID-19 pandemic has produced a stunning change and raised the prospect that the population will grow too slowly.
Border closures have brought overseas migration to a sudden halt and, faced with economic uncertainty and lockdowns, couples are deciding not to have children or are delaying the decision.
As the Herald reported on Tuesday about 56,000 fewer babies will be born in each of the next five years than was predicted in last year’s federal budget.
The lifetime fertility rate, which was predicted to rise to 1.9 babies per woman over the next five years from 1.8 in 2018, is now likely to fall to about 1.6 babies.
Last year’s federal budget was based on a forecast rate of population growth, both migration and natural increase, of 1.7 per cent this year but the budget to be handed down on October 6 will show the lowest growth in more than a century.
Low population growth is not all bad: it reduces demand for schools, housing and other infrastructure. But, in the long-term, it will shrink the working age population and reduce economic growth.
Treasurer Josh Frydenberg touched on the issue in a speech in July but did not go as far as Peter Costello in 2002, who told women to have “one for mum, one for dad and one for the country” as he announced a generous baby bonus scheme.
Mr Frydenberg did, however, offer some gentle encouragement suggesting that “people should feel encouraged about the future and the more children that we have across the country, together with our migration, will build our population growth and that will be good for the economy.”
The pro-growth lobby led by the housing construction sector is deeply concerned about the fall in demand for new housing but the decline in the population growth should not be grounds for panic.
It should be possible to safely restart immigration next year and Australia’s success in controlling COVID-19 should only make us a more attractive destination.
The domestic fertility rate could pick up a little in a few years, since some women who deferred having babies this year are likely to catch up.
Australia’s demographic profile will still be much more favourable than other countries, such as Japan or Italy, where the fertility rate is about 1.4 babies per woman and the working age population is shrinking.
Moreover, economists have been warning about the dire effects of an ageing population for two decades but societies have found ways of meeting the challenge, by retaining older people in the workforce and increasing the participation of women in the workforce.
The decline in the fertility rate, however, raises some difficult questions about the signals Australia’s tax and welfare system is sending to people planning to have children.
In the federal budget there is speculation that Mr Frydenberg will try to stimulate the economy by bringing forward the personal tax cuts due to take effect from 2023-24 which will mostly benefit higher income earners.
Their effectiveness as a short-term stimulus is questionable and they also might not be the best way to encourage families starting out to have children. If he wants to put people in the mood, Mr Frydenberg could increase the existing newborn payment, reinstate the childcare payments he scrapped in July and target tax cuts and payments to young Australian families.
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