Australia, like many developed countries, is experiencing a significant decline in its total fertility rate, with the current rate being around 1.5 births per woman, well below the 2.1 replacement rate required for population stability. This demographic shift has important implications for economic growth, labour markets, and the sustainability of social welfare systems, particularly pensions and healthcare.

A declining fertility rate is not a new issue, and in the past, Australia has turned to pronatalist policies to counter it. These policies included the First Child Tax Refund in 2002 and the more expansive Baby Bonus introduced in 2004. Both policies aimed to reduce the financial cost of childbearing, with the Baby Bonus designed to encourage higher fertility.

This note examines the effects of these financial incentives on fertility outcomes using comprehensive administrative data. It assesses not only whether these financial incentives increased birth rates, but also how their impacts varied across demographic groups, geographic regions, and birth orders. It also distinguishes whether these policies merely brought forward births that families were already planning or whether they genuinely increased the total number of children families ultimately have, a key question for the long-term effectiveness of demographic policy. 

The findings demonstrate that well-designed financial incentives can achieve a genuine increase in birth rate. However, the effect depends on the design and targeting of the policy.

Key findings

• The Baby Bonus increased monthly births by 6.5%, around 1,300 additional births per month.
• The Baby Bonus did not affect birth spacing, indicating births were not simply brought forward.
• Mothers who received the Baby Bonus, as a group, had 6.8% more children in total by 2022, showing it increased completed fertility.
• Fiscal cost per additional birth: approximately $50,000 per additional birth in 2004 dollars (around $86,000 in 2025 dollars). This cost reflects transfers to families, consistent with the policy’s aim of both supporting parents and encouraging births.
• In comparison, the earlier First Child Tax Refund raised first births by 2.3% but did not affect overall fertility.