From Budapest with Love: Fixing Fertility

We need more babies. The recently reported fertility for the United States is at a historical low. Australia’s fertility rate sits at 1.6 children per woman. The most alarming stories spring from northern Asia. Japan’s fertility rate is so low that villages are disappearing. Across the Sea of Japan, South Korean women are having, on average, less than one child across their lifetime.

Since Thomas Malthus propagated his “tragedy of the commons” theory at the end of the eighteenth century, those of a conservationist frame of mind have argued that birth rates are too high for our planet to ecologically sustain human life. There are, it is often said, too many people. But the tide is turning.

Mainstream news and current affairs outlets, like the Economist, National Geographic, and CNN, usually mouthpieces for population alarmism, have been reporting that population decline is all but inevitable. By the seventh decade of this century, we can expect the population to peak and then decline.

We have been living through one gigantic population growth spurt, and the tipping point is approaching. The question that looms is this: What happens next? What are the consequences of lower fertility rates? Europe saw a population decline during the Black Death, and the result was arguably economically beneficial. Some historians suggest that the cultural artefacts of that era point to economic uplift.

This medieval-era scenario is an exception to the rule. A reduction in population almost always results in a reduction in economic growth, in some cases so much so that living standards decline significantly. In Australia, ageing Baby Boomers are funded by fewer and fewer workers. Fertility decline is a vicious cycle, a problem that gathers speed as each generation gets smaller. An increase in leaners (Boomers) and a decrease in lifters (Millennials, Zoomers) points to an economic crisis.

With economic crises come social crises. Further upstream lie cultural convulsions. In some countries, all three are converging. Europe is living through a revolution instigated by immigration, and a similar event is unfolding in the United States. This puts pressure on housing, education, and healthcare access. More germane is the issue of the social fabric. French people no longer recognise the country they grew up in. The United Kingdom has similar characteristics, with firstand second-generation Muslim migrants now a dominant feature of Britain’s urban population. High-net-immigration-style liberal pluralism is, to paraphrase Angela Merkel, an utter failure.

One question policy-makers need to answer is “Why?” Not “Why should we encourage fertility?”, but “Why is this happening?” Why is it that people have stopped having babies? Why, in all developed countries with a small number of exceptions, is fertility already below replacement level and still declining? What brought us to this point? Answering this diagnostic question can point to solutions, including policy solutions.

Many analysts posit economic forces as the driver of declining fertility. As countries grow wealthier, their people tend to have fewer and fewer children. But is this all there is to it? Does correlation mean causation in this instance? Or is a form of Max Weber’s thesis around the “Protestant ethic” closer to the mark—that religious belief (read “culture”) led to changes in economic forces, which led to cultural change? It’s not always easy to find out.

Guillaume Blanc, an England-based economist and historian, is one scholar who has found an answer concerning the first baby bust in modern Europe: France. Blanc gathered data from birth records, baptismal records, parish records, and marriage records, and aggregated and analysed them. He found that secularisation, which he defines as a decline in the influence of the Roman Catholic Church, played a crucial role in fertility decline in pre-Revolution France. The key point here is that France’s demographic decline pre-dated the Industrial Revolution and the political revolution of the 1790s. People had fewer babies because the Church wasn’t a prominent influence. Culture preceded demography.

What role does culture play in the declining fertility in Australia, or in any other Western nation? It is difficult to pin down. The more religious United States has a higher fertility rate than the more secular Australia, but only marginally. Israel is one example where conservative religious groups drive above-replacement level birth rates as high as 3.0 children per woman. The OECD has found that member countries have populations that, on average, desire to have more children than they do have. There is a gap between the ideal number of children, and the number people end up having, with people wanting an average of 2.2 to 2.3 children.

Why there is this gap brings in the question of economics. If people desire something but cannot, or choose not to, attain it, something other than culture might be standing in the way. There is a statistical correlation, what statisticians call a “strong negative association”, between incomes and birth rates. If people earn more money, they have fewer children on average. But this relationship between income and fertility makes little sense—why would someone earning more money feel they ought to have fewer children? Is their income a constraint on them? Decadence certainly plays a role; people would rather enjoy overseas holidays and eating out than have more kids. But are there other barriers that relate to the material conditions of everyday life?

One clue comes with the concept of “Car Seat Economics”, an idea coined by US economists Jordan Nickerson and David Solomon, who argued that car seat laws act as contraception. If you are not allowed to, or physically cannot, house three car seats in your vehicle, you are far less likely to have that third child due to the cost of upgrading your car. Practical barriers, whether brought about by law or car manufacturers, make a difference in people’s fertility decisions.

The inverse is also true, and herein lies the clue for public policy wonks. If you build it, the babies will come. If the conditions exist for potential parents to feel confident and secure, fertility has been shown to increase. Research by Anvar Sarygulov and Phoebe Arslanagic-Wakefield points to this. In a fascinating analysis of the conditions that undergirded the baby boom of the 1940s, 1950s and 1960s, Sarygulov and Arslanagic-Wakefield show that the old myth that the end of the Second World War caused the baby boom is not only wrong, but that other hypotheses about the Boomer generation are also misguided.

Rather than people making up for lost years on the battlefield, or a gap between people’s pessimistic expectations and the bright reality after 1945 (known as the “Easterlin hypothesis”), people had more babies because it was easier to do so. Medical technology cratered (in the positive sense!) maternal mortality in the West. Household technologies such as refrigerators, vacuum cleaners, and washing machines all saved unprecedented amounts of time and labour. And parents, and potential parents, found it relatively easy to buy, or build, their own home. People had more kids because it was safer and easier due to technology and a housing boom. Some research even suggests housing construction during the baby boom era also led to an increase of a third in marriages, which was, back then, a standard precondition for procreation.

Of the three material factors in the post-war baby boom, only one could be considered a factor today: housing. Much of the Anglophone West is experiencing a debilitating housing crisis. Home ownership after the Covid pandemic is now beyond the reach of most people who didn’t already own a home before it. House prices have raced ahead of wages such that the average house costs sixteen years of average income in Australia. In 1990, that number was nine. Building costs have skyrocketed. Housing supply is contracting. Interest rates are rising in response to inflation, and inflation puts pressure on household budgets and restricts the ability to save for a loan deposit (which already takes about eleven years on an average wage in Australia). Indeed, it is difficult to see how anyone currently under twenty who doesn’t come from wealth could buy a home in the future.

The importance of housing availability and affordability in the post-war baby boom points to this being a key plank in fixing the fertility crisis gripping the West. Affordable housing made it plausible for the average couple to have and house their brood, and, as Sarygulov and ArslanagicWakefield argue, they “did it earlier and had bigger families”. Car seat economics? Or unaffordable housing as a contraceptive?

Either way, public policy can make a difference in a variety of ways, not least in housing affordability and supply. There is more that governments can do to incentivise natalism. And the housing issue is bigger than fertility, to be sure. But if one considers the conditions for the last big baby boom, housing was a key plank, and housing is a massive policy problem today.

It is also a policy area that conservatives can use to their advantage in the long term. Solving the housing crisis, opening up possibilities for people to own house and land, helping people have a plot of earth to call their own, builds the conservative voting base. People who have something to conserve, a place to build, grow, and cultivate, a haven from the public world, are much more attuned to conservative values. One key conservative value is procreation. Conservatives are pro-children and pro-family. The family is a crucial building block in our social fabric, and families that reproduce themselves and create continuity between generations serve to stabilise society and create vibrant economic activity.

This kind of philosophy of family policy is evident in Hungary. Led by Viktor Orbán, the Fidesz government responded to plummeting birth rates upon their election in 2010 with an expansive and dynamic suite of family policies. When they took office, the fertility rate was 1.2 and heading downwards. In the last fourteen years, the rate has risen to 1.6. The increase is the highest in the European Union. While different explanations for the increase are offered, their family policies will surely have helped. Western governments can learn from Hungary’s example, as they lead the way in using an innovative, multi-pronged approach to changing the direction of their country’s fertility rate.

The Fidesz platform is made up of simple cash payments, loan schemes, and tax incentives. Each policy is designed to remove barriers to people having their desired number of children. A concrete example is the “CSOK program”, under which the government gives couples subsidies of up to 10 million forints (equivalent of A$42,000) to buy or renovate a home. The logic of this? Like the housing boom that led to a baby boom after the Second World War, the Hungarians recognise that housing is fundamental to higher fertility.

Other policies include simple payments to newlyweds, who receive a modest payment every month for twenty-four months after their mar riage. Those who work full-time whilst under the age of twenty-five receive an extra 75,000 forints (A$315) per month from the government. Why? To help young people set themselves up financially to have children earlier. A similar approach can be seen in the more recent policy giving women who give birth under the age of thirty complete exemption from income tax. So, too, women who give birth or adopt while studying, or within two years of completion, will have their student loan waived by the government.

Couples who have babies can access a “Baby Expecting Loan” of 10 million forints (A$42,000) interest free. The money is not tied to particular spending, and is entirely paid off by the government if the couple have three or more children. Perhaps the most intriguing, and crucial, element of the policy suite is the Hungarian government’s use of the tax system to incentivise procreation. The average Hungarian family with three children pays no personal income tax. And any woman who has four or more children never pays income tax again.

The Magyars fully recognise that handouts and tax breaks are not enough to encourage more babies. That’s why they not only encourage babies, but also encourage marriage. Indeed, the foundation stone of the Orbán government’s fertility policy is their promotion of marriage. Almost all the tax benefits and handouts related to fertility in Hungary are linked to the couple being, and staying, married. The results of this are notable. From 2010 to 2022, the number of divorces in Hungary dropped from 24,000 to 17,500, a 27 per cent decrease. Even more striking is that the number of marriages doubled over the same period, from 35,500 to 72,000 in 2021, before a small dip again in 2022. It isn’t an iron law, but higher fertility is linked to marriage. The underlying cultural norms of no-fault divorce, trivialisation of marriage vows, and sexual liberty, undermine fertility. Marriage is more important for a healthy society than we usually let on in public policy discussions.

Which brings us back to the question of culture. Strengthening the culture around the institution of marriage seems to be one way to increase fertility. But would Australian politicians have the political capital to be so prescriptive about people’s living arrangements? It seems unlikely right now, even if the ideal makes sense. Nevertheless, a conservative government could take hold of the principles found in the Fidesz family policy platform and try to apply them here.

One key, and potentially fruitful, focal point is housing. Any Centre-Right government worth its salt can win voters across the spectrum with a pol icy that gets people into their own homes. Home ownership is fundamental to a stable society and stable economy, and home ownership is the basis for higher fertility rates. Furthermore, home ownership provides the foundation for long-term success as a Centre-Right government in Australia; people who want to conserve their property and leave something for their descendants are much more likely to vote Centre-Right if those naturally conservative values are reflected in policy terms.

Further lessons from Hungary suggest that a reinstatement of the Baby Bonus, introduced by the Howard government, would be prudent. That policy did see a rise in the fertility rate before 2010. Since its abolition, the rate has declined again. A re-working of the Family Tax Benefit (FTB) around larger families would provide an incentive for procreation, rather than it being a financial security blanket. The FTB could be heavily deducted for families with less than three children but increased substantially upon the arrival of a third child. The result could be more families at above-replacement-level size.

Another set of policies could be geared directly towards tax incentives. If a mother and father know that upon the birth of their fourth child they will never pay income tax again, it would encourage at least some fence-sitters to become pro-natalist in their personal lives. Other tax incentives could include tax benefits for mums who give birth before their thirtieth birthday, or lifetime exemptions from income tax once a woman has a certain number of children with her spouse or partner. A further simple, but effective, mechanism would be to calculate income tax by household rather than by individual. Studies show that this would result in less pressure on women to enter the workforce and, therefore, more openness to more children.

There are real options open to Australian policy-makers that can fix the fertility problem. Further, these policies can be vote-winners. They will appeal across all socio-economic strata, they will encourage larger families, and they will have a long-term positive impact on Australia’s social fabric and economic life. We need more babies. Therefore, we need courageous politicians who will find ways to get them.