Scrap the Baby Bonus and Raise Teacher Pay?

I popped into the ABC studios on my ride to work today to do a pre-record with Life Matters this morning on why the Baby Bonus is bad policy and should be scrapped. Cycling into work afterwards, a thought occurred to me. There are approximately a quarter of a million babies born in Australia each year, and approximately a quarter of a million teachers. If we accept that the Baby Bonus should be scrapped, and that teacher salaries have declined in recent decades (some of my own evidence here), then scrapping the Baby Bonus would give us about $5000 per teacher per year to spend on teacher pay (I’m ignoring complications like the mooted policy change, and the fact that one-third of teachers are employed in private schools). So in theory, we could:

(a) Raise all teachers’ salaries by $5000

(b) Raise salaries for the best 20% of teachers by $25,000

(c) Raise salaries for the best 10% of teachers by $50,000

In other words, option (c) would give us a substantial group teachers on six-figure salaries. Good public policy would of course ensure that those teachers taught in the most disadvantaged schools.

My own preference would be a small-scale randomised trial of (a), (b) and (c), putting the claims of the critics and proponents of merit pay to the test. (For a discussion on how you might determine “best”, type “fair merit pay” into the search box on the right.)

In my view, any of the three options would be an improvement on the status quo.

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23 Responses to Scrap the Baby Bonus and Raise Teacher Pay?

  1. Bill O'Slatter says:

    The assumption here is that the pre- tertiary level education system would be improved by this. You really have to work through this : the biggest factor in a success at these levels of education , to my understanding , is their parents interest in the outcome.

  2. Patrick says:

    Probably so. But then I’d be a few thousand poorer this year 🙂

    Personal pecuniary interest aside, I think that’s an excellent idea. Note, if they wanted to preserve some of the incentives of the Baby bonus, they could defer HECS for working mothers/fathers. That would encourage the presently less-likely-to-reproduce, not only to do so, but to do so earlier when, basically, they do it better.

  3. Andrew Leigh says:

    Bill, I have a paper on the relationship between teacher pay and teacher aptitude, which finds a reasonably large positive effect (a 1 percent rise in the salary of a starting teacher boosts the average aptitude of students entering teacher education courses by 0.6 percentile ranks).

    Patrick, congratulations – when’s the bub due?

  4. Othello Cat says:

    Great idea Andrew. If — and only IF — one makes the assumption that children are a future social asset that should attract a government subsidy as an investment THEN I have more faith in teachers being paid this money rather than individual parents as they can be relied upon to be better at rasing children. Indeed, only this year did Hugh Mackay make the published observation that modern Australian parents are outsourcing their responsibilities by expecting schools and the education system to instil values in their children.

    “they could defer HECS for working mothers/fathers”

    This idea was toyed with by a parliamentary committee. Essentially it was recommended the HECS debt (now known by the Owrwellian appellation of HELP) interest ought to be waived when a couple has a child and one parent stays home to care for said child.

    *rolls eyes*

    Once again, one does not need to dig deeper into the subext that this is really about preferential treatment for child-makers. I can name many people with HECS/HELP debt that had to take time out of the workforce due to illness or to care for an ailing relative. Surely they are more deserving of a waiver on their HECS debt? Special treatment for HECS-debt parents has crassly eugenic undertone. (I wonder if the supporters of “income splitting” for couples would also accept that would mean paying back **two** HELP debst instead of one?)

  5. Patrick says:

    Actually, Catty, you are missing the point. I don’t know anyone who has had a critically ill relative or loved one by choice – do you?

    OTOH, I actually do know a hell of a lot of people who had kids because they thought ‘oh, maybe we should have kids now’.

    Get it? Kids are discretionary, so tax and welfare policy can influence the decision to have them. So, especially if you think encouraging kids is a good idea – and on that point you may just have to live with being a micro-minority with not enough votes to care about – and even if you don’t, it makes sense to think about how the tax and welfare systems influence those decisions.

    Note, it isn’t really relevant whether you do think kids are a good idea because you should still be interested in the effect of tax and welfare policy on decision-making, particularly when it is decision-making with such widespread ramifications.

    Andrew: about the first of October. We are tipping the last day of September, on past form. Unfortunately, there aren’t any notable celebrations around this date, which we worry will give this one a complex later in life. – his/her older brothers being born on Independence Day and Bastille Day 🙂

  6. ChrisPer says:

    Andrew: “Good public policy would of course ensure that those teachers (best 10%) taught in the most disadvantaged schools.”

    This is sadly utopian, and I can’t help but feel that you have let moral principle overwhelm such helpful ideas as comparative advantage.

    The ‘best teachers’ usually deliver their best with responsive, bushytailed, well-socialised kids whose education is valued and supported by their parents. These are not concentrated in the ‘most disadvantaged’ schools. What is concentrated there are kids who have serious behavioural problems, family problems, brain damage from petrol sniffing and functional illiteracy from absenteeism and other reasons.

    The few teachers who thrive and get good results there should not only be well paid, they should be cloned for worldwide distribution!

    In these circumstances, your ‘best teachers’ may just be destroyed or driven from the public system.

    A friend teaching at a high level of education told me he taught that ‘the rich live on the hill so they can piss on the poor’. He drove his students around Adelaide to ‘prove’ it. My opinion is that successful talent, life behavioural choices, health and wealth tend to occur together, creating SES; and successful education outcomes are merely one by-product of the good stuff coming together for the gilded few.

  7. Bill says:

    Hi ChrisPer,

    “Sadly Utopian” ? [or] Perhaps extremely high expectations of historically under-valued/utilised professionals? [I am using the term loosely]

    I often contrast public policy debates in education with those in health.

    It interests me that we don’t place the same causal relationships [or high correlations] between medical professionals in communities with poor health/birth/life expectancy statistics as we do with teachers/educators in similar communities?

    Imagine if we made dentists or doctors the basis of the debates we currently have with education?

    Could I recommend:

    Academic success and social power : examinations and inequality / Richard Teese.


    Undemocratic schooling : equity and quality in mass secondary education in Australia / Richard Teese, John Polesel


  8. Othello Cat says:

    “Kids are discretionary” Yes, Patrick they are indeed. A bit like choosing not to have them too. Why should people without children directly subsidise those that do? I have no problem my taxes paying with public goods such as national security, infrastructure and, yes, even the education of you children which is why I would rather trust a teacher with a $5000 bonus than smug, santimonious breeders, [1]

    The pepertual carping for all manner of fecundity funding goes far beyond merely addressing social disadvantage. It appears the smug breeders especially the middle-class — think they deserve a zero-sum impact after children and minimised inconvenience.

    The childfree households will outnumber the child-burdened in three elections’ time. Yet it seems the entitlement-poisoned breeders will not be happy until the childfree singles and couples are working 24/7, are taxed within an inch of the poverty line and are kicked out of their homes (but continue to pay rent/mortgage) so they can return to their pre-parental lifestyles all at the expense of the childfree.

    This is not about welfare; this is class warfare.

    1 — Parents — people who raise their children because they wish to love and show love. Breeders — whiny martyrs that intimate they are doing the benevolent equivelent of helping lepers in Africa and claim the tenuous moral high ground (taxpeyers of the future/doing for the nation) to justify reaching into the pockets of others.

  9. Patrick says:

    Catty, calm down. If it helps, I am all for cutting your tax bill. Massively, in fact. By about a quarter, at least.

    But the point about kids being discretionary is that the effect of tax and welfare should be modelled – because we generally accept that we should know what we are doing.

    Also, no-one is proposing here to subsidise anyone – just to defer payments of tax. Since the deferred payer is the primary income earner, it is hard to conceive of a ‘breeder’ who will ultimately escape his/her share.

  10. NPOV says:

    It may be discretionary for parents to have kids, but for the resulting kids, it’s not discretionary for them to need food, shelter, healthcare, education etc. Family payments are effectively all of us subsidising the existence of the children, who can’t pay for themselves. There’s no good reason for it to be entirely up to the parents to fund the existence of their own children, as the benefits go to everyone, and obviously society would soon cease to exist without children.
    Having said that, I agree the baby bonus is bad policy as it currently stands, and that paying teachers more would make far more sense (as it improves the productivity of each citizen, rather than simply encouraging us to produce more citizens).

  11. ChrisPer says:

    In a population that is only marginally replacing itself, a breeder can be alternatively viewed as a public service. Such people support the future of those wealthy individuals who chose NOT to breed for their own financial advantage, not that there is anything queer or irrational about that!

    Actually, kids tend to be more like the things that happen to you than what you make happen. Like car accidents, for instance; your actions may impact the probability but…

    The argument that you can contrast ‘parents’ (responsible) with ‘breeders’ (rent-seekers) strikes me as pretty much a rhetorical distinction – as in “Are you a surfer – or one of those dole-bludging surfIES????”

  12. ChrisPer says:

    Bill, thanks for the references, must have a look.

  13. conrad says:

    “as the benefits go to everyone, and obviously society would soon cease to exist without children”

    I thought the argument was that without any benefits, people would have a certain number of children anyway and we could plug the rest with migrants (if we were really so enthusiastic about population growth), who generally don’t need 12 years of publically subsidized education etc.

  14. conrad says:

    I might point out too here that given which groups actually pay a net positive amount of tax (i.e., young people without children) all these family subsidizes start to seem a lot more circular, where young people essentially pay for slightly older people to have kids. I imagine that for some subset of the population who thinks it might be a good idea to have some money/assets before breeding, this is a negative against having children, since paying for other people’s kids stops you saving yourself.

  15. NPOV says:

    conrad, I don’t believe the benefits should be put in place to actively encourage voters to have children, rather just as a recognition that somebody has to bare the cost of raising the next generation, and it’s not entirely fair that it’s entirely up to the parents. Non-breeders benefit from the existence of children once they become adults and contribute to the economy, so it’s perfectly reasonable they should contribute toward the cost raising them.

  16. conrad says:

    “Non-breeders benefit from the existence of children once they become adults and contribute to the economy, so it’s perfectly reasonable they should contribute toward the cost raising them.”

    1) Its not clear to me that this perfectly reasonable at all. There’s lots of things you can benefit from that you don’t have to contribute to. It also doesn’t take into account opportunity costs on investments — perhaps it could be spent on something that benefits others more — but no-one gets a say in this. As a rather bad analogy, I could plant trees in your garden, and that might well benefit you, but I don’t see why you would have to pay for that.

    2) When calculating the economic benefit of children born into Australia, it should be pointed out that they essentially inherit a large amount of infrastructure already here when born, so I imagine the benefit is smaller than you might think (basically where we are in the future minus the contribution of immigrants minus where we are now. If you think immigrants will contribute a lot over average, then that number might be negative).

  17. NPOV says:

    “There’s lots of things you can benefit from that you don’t have to contribute to”

    Sure…but generally those are things that are easily enough provided by those that have the resources to.

    Children are very very expensive to provide, and there’s little doubt that they are essential.

    FWIW, I think Australia more than adequately provided to parents raising children even before the baby bonus. But I do think if we view family benefits as “subsidising the children”, then there is a reasonable argument that they shouldn’t be at all dependent on the income of the parents: as it is, children of wealthier parents cost more to raise, so giving wealthy familes the same amount per child as poor families is benefitting poor familes the most, hence is effectively “progressive”. Plus a flat per-child rate has the addition bonus of not affecting EMTRs (this doesn’t really apply to the Baby Bonus which is a one off lump sum payment – though I can certainly see parents not being keen to increase their income past the threshold if the mother is pregnant).
    What I would argue though is that the family benefit amount should be calculated on the absolute minimum that it costs to provide for a child, so that there’s no possibility that the money can be spent for other purposes.

  18. Patrick says:

    NPOV, I actually agree with you here. Except for this:

    What I would argue though is that the family benefit amount should be calculated on the absolute minimum that it costs to provide for a child, so that there’s no possibility that the money can be spent for other purposes.

    It’s a good idea. Unfortunately the conclusion is anything but a logical consequence of the argument 😦

    One regular commenter here has a solution, which is basically vouchers – but I doubt it would work. In fact I am 90 per cent sure it would not.
    Plato had a solution as well. It is theoretically very attractive but rather hard to actually embrace.

    But despite all these imperfect solutions I don’t really have a solution myself, except that it may be better to simply provide essential services for at least ‘problem’ (addicted, dysfunctional, etc) parents rather than give them the money to pay for them.

  19. NPOV says:

    Patrick, are you suggesting that if you make the payments too low, then dysfunctional parents will simply abandon or neglect their children? I’d agree that would be a risk not worth taking – except that it should be fairly easy to determine which parents are obviously neglecting their children fairly quickly, given the requirement of regular healthchecks, and the attendance of children at school. There is a dangerous period between 2yo and 4yo where there are no healthchecks and no requirement for school attendance, but wouldn’t children from homes with no regular income be classified as “high risk” and therefore get more regular checkups?

  20. NPOV says:

    (BTW, I should clarify, when I said “this doesn’t really apply to the Baby Bonus”, I meant that means-testing the baby bonus wouldn’t have a significant effect on EMTRs, unless of course the mother planned to give birth every year!)

  21. A man after my own heart. I have been meaning to get around to an analysis of (and a quick blog piece on) the ways in which we could lift teachers salaries (and the reasons why this would be such a good idea) – but you’ve done all the hard work for me.

    Maybe if we can also find a politically savvy way of introducing paid maternity leave, we really would see a lift in the reproduction rate.

    As evidenced here:

    one of the major contributing factors to fertility rates in developed economies is the security of regular pay, not necessarily a bonus… I think higher education prospects for our children might also help.

    Even if it doesn’t, higher pay for teachers is good policy for so many other reasons. 🙂

    Thanks for the great advice.

  22. NPOV says:

    BTW, I’m not so sure that couples with children really do get such preferential treatment. I posted a version of this on, but it seems relevant here.

    Going by, the net taxation (tax – benefits) for couples with children is $225 on average, or 15% of income. Couples without children earn $956 per week, receive $132 worth of cash benefits, and are taxed at $196, for net tax rate of less than 7%.
    If you leave out education, then couples with children receive somewhat less in total benefits (cash + in kind) than couples without children, despite earning more on average.

    So if you take the position that education is a public good, and therefore the cost of educating the next generation should be shared among all income earners, it’s not clear that couples with children do come out ahead. You certainly couldn’t claim that childless couples are subsidising those with children in any significant way.

  23. Patrick says:

    except that it should be fairly easy to determine which parents are obviously neglecting their children fairly quickly

    Ha, I wish. Have you heard anything about a group called DOCS?

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