What Kind of Kid Does $1,000 Buy?

The population of Newfoundland and Labrador is declining, as working-age (and reproducing-age) Newfoundlanders leave in droves to seek jobs.  Last year, the province had more deaths than births.

The solution recently announced by Premier Danny Williams--a $1,000 baby bonus for every child born or adopted into a NL family--is exceeded in its absurdity only by the position taken by many local critics:  namely, that the baby bonus is a good idea, but needs to be more generous.

Yes, baby bonuses have demonstrably induced people to have more children many times in the past. Quebec, for instance, implemented a generous baby bonus in 1988, and saw its birth rate climb 21 percent within three years. 

 But consider:  who are the people most likely to be influenced by such policies?  If $1,000 is enough to make the difference between having a child and not having one, maybe these aren’t the sort of parents anyone wants to see procreating.  That sum won’t go far in caring for a baby.  Couples who don’t recognize this are either hopelessly bad financial managers or else they’re expecting some fresh miracle to rescue them after the first $1,000 is gone.  Or maybe they’re so irresponsible that they don’t give the future any thought at all.  The money will probably run out within a year, and then the province will have on its hands another family that can’t afford to raise its children. 

But Mr. Williams has already thought of this, so he’s not stopping at $1,000.  He has also spoken of $100 monthly parental leave supplements and more government-funded day care spaces. 

But this doesn’t solve the problem.  If anything, it aggravates the problem.  If a family can’t afford to look after its children without long-term government assistance, is this family really what the province needs?  Does Mr. Williams really want his fellow Newfoundlanders to breed up a whole generation of youngsters whose very survival depends upon government largesse?

Economists tell us that if you subsidize anything, more of it will be produced—whether it’s corn, milk or unemployed fishermen.  Offer people money to be unemployed—and someone, somewhere will find the idea attractive enough, relative to his other options, to take up your offer.  It’s the same story with poor children. If you subsidize the production of them, someone will produce them.

Self-styled “anti-poverty” groups have been working for years to wring subsidies for poor children out of governments.  In 1989, the House of Commons passed a unanimous resolution to eliminate child poverty by the year 2000.  But every single measure governments adopt to ease the financial burden on parents—from monthly stipends, to sports tax credits, to cheaper day care—actually has the effect of subsidizing people to produce children they can’t afford to raise on their own.  That’s why, despite the rhetoric and presumably good intentions, government handouts can never eliminate child poverty.  The solutions sought by “anti-poverty” groups will actually create more of the condition they claim to oppose.

Meanwhile, even if Mr. Williams succeeds in increasing his province’s birth rate, he’ll still have to wait 20 years before those children contribute significantly to the economy.  And why does he expect those kids to hang around when their predecessors have always had to leave to get jobs? 

What he should be doing instead is figuring out what would make the children born in Newfoundland without government incentives want to stay—because those same policies would also stop the current working generation from leaving, and would even encourage many who have already left to return.

The so-called Irish Miracle has done precisely that in the Republic of Ireland.  Low tax rates and investment-friendly policies have encouraged industry to relocate there, along with artists, musicians and writers. Over 16 years, unemployment plummeted from 17 percent to 4 percent.  Per capita gross domestic product skyrocketed from 60 percent of the European Union average to 136 percent.

Meanwhile, families of four in Newfoundland and Labrador pay tax at 48.6 percent, versus the Canadian average of 43.2 percent and Alberta’s mere 37.4 percent.  Corporate tax rates too are significantly higher in Newfoundland. If Mr. Williams wonders why he can’t keep workers there, he need look no further than his government’s tax-and-spend policies—the very policies he’s promising more of.

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