Friday, 17 February 2012

A doomed policy with a good intent

In today’s Ottawa Citizen, there is news that Germany, facing lowest-low fertility and a potential old-age dependency ratio of 1 to 2 by 2040, is going to tax childless citizens over the age of 25, halving the tax for single-child citizens and abolishing it for couples with over two children.

The idea is good in theory, because it is childless couples who tend to be exceptionally rich and would have enough money to pay for the welfare of old-age dependents in the long-term future.

European governments presumably know that continent-wide hyperinflation is a likely result of projected old-age dependency ratios as governments with a limited tax base cannot cut welfare payments without violent protest and have no resources to raise more tax like Australia does. Angele Merkel presumably hopes that people who are childless will effectively be forced to save money through having it “minded” by the government.

The problem is that, in reality, the costs inherent in government regulation and taxation will simply drive people either to:
  1. greater hoarding of money, as with East Asia
  2. reduced investment due to even higher taxes for businessmen who often do not raise families because of their commitments
    • this could mean even less economic growth and less money to raise children
  3. does nothing about the extremely high cost of children from extreme government regulation of housing and land
The key to a solution is to create a society where it is affordable to raise children and just as significantly, where the children do not as in the years following the Industrial Revolution, take so easily to ideologies that produce a government far beyond the capacity of Eurasia’s depleted natural resource base. The policy advocated by Merkel is unlikely to do anything to make child-raising remotely affordable in Germany: unless this can be achieved either by making it cheaper or making the population less selfish and less concerned with ephemeral goods, the demographic decline will continue remorselessly.

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