It will be important to focus on the efficiency and effectiveness of government spending
I couldn’t agree more. Unfortunately, the government isn’t heeding its own advice, as the Integenerational Report itself shows. In an appendix on spending projections the Report compares spending forecasts made in the first report five years ago with those Treasury makes now. Back then, they thought that Family Tax Benefits A and B would consume 1.3% of GDP in 2006-07. In the second Report they say FTB spending will be 1.6% of GDP in 2006-07. In a trillion dollar economy – as various government Ministers for some reason keep telling us – that 0.3% is a lot of money. In real per person terms, it’s gone from $613 per person to $790 per person, or about a 29% increase.
Now what do we have for all this money? According to the Report:
Higher fertility and higher levels of migration slow the rate of overall ageing of the population. Policy initiatives that have supported this include expansion of the Maternity Payment and other policies to support families, including large increases in the maximum rate of the Family Tax Benefit.
It’s true that the fertility rate has edged up, but in absolute terms births are only modestly higher, about 4% more, in the latest statistics (2005) than they were in 2002. As Ross Guest points out in an article on the baby bonus in the new issue of Policy these policies tend to be inefficient, because they mostly reward people for doing what they were going to do anyway. Most long-term couples will have at least one child regardless of incentive schemes. At this stage, it is not clear that these family schemes have had any long-term impact on fertility. We could just be seeing the delayed fertility of many women who had left starting their families rather late. As spending programs, family payments are unlikely to be efficient or effective.
For a Report concerned about fiscal sustainability, the amounts involved are not trivial. Though the second Report forecasts a decline in FTB spending per person in future years, even a decade from now the prediction is that the FTBs will cost more than the PBS, a major driver of the coming fiscal pressure. Yet as I argued in my big government conservatism article this was money the government chose to spend, not money it spent for compelling policy or political reasons. But now that it is being spent it will be very hard to cut, because millions of people get a share of it and many of them live in the seats that decide elections.