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Baby bonuses: still a good investment for governments

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Babies, like everything else recently, are in short supply. In the UK, the natural population is forecast to start declining in three years. That has already begun in countries as disparate as Japan and Germany while populous China trails close behind. Can financial incentives increase production?

Ren Zeping thinks so. The renegade economist triggered a backlash on Chinese social media by proposing China set up a $300bn “fertility fund”. More modest baby bonuses already abound across the globe. By some estimates, a third of countries offer one-off payments to parents of newly-hatched babes. These include Estonia, France and Italy.

Among the most generous are those at Lestijärvi in Finland, which hands out €10,000 bonuses. The tiny municipality resorted to financial rewards when only a single baby was born one year. Its nativity rate subsequently grew exponentially.

As with child benefit payments, however, these barely cover a fraction of the costs of rearing one to adulthood. The UK’s Child Poverty Action Group estimated the basic cost, including rent and childcare, at £185,000 for single parents and £151,000 for couples in 2019. Add in de rigueur middle class activities — pony riding, private education and the Mandarin tutor — and the figure quickly closes in on £1m.

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The numbers would roughly stack up for would-be parents in China under Ren’s hare-brained scheme. He is counting on 50m more babies in 10 years’ time, implying $6m a pop. Inflation-adjusted numbers from a 2014 survey suggest the total rearing cost is $41,000 (2021 prices) for city kids in China.

Lex chart showing how pro-natal policy implementation change has produced mixed results

For governments, payback is also the issue. There are many moving parts, including the amount of public services, such as health and education, consumed. But most should comfortably repay their juvenile largesse. An average UK household earning £41,000 in 2014/15 paid £826,000 in lifetime direct and indirect taxes, according to the TaxPayers’ Alliance. That is closing in on £1m at 2022 prices.

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Indeed, a study co-authored by the UK’s Institute for Fiscal Studies found just 7 per cent of people receive more in benefits than they pay in taxes over their lifetime. Case closed.

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