In a bid to boost the nation’s low birthrate, then-premier William Lai (賴清德) announced at a media event on May 16, 2018, that the government would provide a monthly allowance of NT$2,500 (US$83.47) for households for each of their first two children up to the age of four, and an additional NT$1,000 for a third child.
This program was implemented in August last year, but Taiwan’s birthrate continues to decline, while the rate of deaths is increasing.
The National Development Council said that Taiwan is, at the current pace, likely to reach a negative growth rate by 2022, faster than the World Population Review’s forecast of 2031.
Taiwan has been an aged society since April 2018, as more than 14 percent of the nation’s total population is older than 65.
An aging population combined with a low and declining birthrate constitutes a national security problem, because economic growth is not sustainable with an inadequate workforce.
At a campaign event in Taitung on Nov. 22 last year, President Tsai Ing-wen (蔡英文) promised to increase the monthly allowance from NT$2,500 to NT$5,000, and also to extend the coverage from four-year-olds to six-year-olds, indicating that the new measure had been unable to increase the birthrate.
To effectively increase the birthrate and tackle child poverty, the government must substantially expand the existing program. The child benefit must be a tax-free monthly payment to eligible households to help them with the cost of raising children up to age 14, rather than to age six.
The age of 15 is the threshold for labor force participation in Taiwan, which means that children aged 15 can start to work to support themselves.
Therefore, the benefit per child must be expanded from four years old to 14, which would provide enough incentive for families to increase the birthrate.
The Report on the Survey of Family Income and Expenditure 2019 said that the average annual disposable income for the lowest 20 percent of the nation’s population, about 1,728,628 households, was NT$344,948 in 2018, less than their expenditures of NT$363,158, implying negative annual savings of NT$18,210 per household.
Negative savings have existed since 2007 for the lowest 20 percent of households, suggesting that these households will have, for a long time, insufficient resources to raise their children.
Therefore, the child benefit must be targeted to those who need it most. Low and middle-income households should get higher payments, those with higher incomes less, and the highest income groups should not be subsidized.
Following Tsai’s re-election, the proposed monthly allowance increase should be implemented.
The basic child benefit for children younger than seven should be NT$5,000, and for children aged seven to 14 it should be NT$4,200, with a larger benefit per child younger than seven.
As the child benefit must focus on low and middle-income households, for those with an annual income of less than NT$385,000, the amount should be NT$5,000 per month or NT$60,000 annually for children up to the age of six, and NT$4,200 per month or NT$50,400 annually for children aged seven to 14.
For example, a single mother of two children, aged five and seven, with an income under NT$385,000 this year would have received NT$110,400 in child benefit payments.
For households with an annual income between NT$385,000 and NT$833,850, the child benefit should be reduced based on progressive rates and number of children.
For example, for a family with one child, the suggested reduction should be 7 percent for those with an income between NT$385,000 and NT$833,850.
If the income is NT$833,850 and the child is younger than seven, then the child benefit would be NT$28,580 annually, and if the child is younger than 15, the amount would be NT$18,980 annually.
For households with two children, the suggested reduction should be 13.5 percent for incomes between NT$385,000 and NT$833,850.
If one child is younger than seven and another is younger than 15 in a family with an annual income of NT$833,850, then the child benefit for this family would be NT$49,805 annually.
The progressive rates for the amount of reduction should be 19 percent for three children, and 23 percent for four or more children in a household.
For households with an income greater than NT$833,850, the benefit should be gradually reduced based on a two-income threshold and the number of children.
The first income threshold is NT$385,000, while the second income threshold is NT$833,850. If household income is greater than NT$833,850, another progressive reduction rate should be applied, depending on the number of children.
For example, the child benefit should be reduced by 2.2 percent for one child, 4.7 percent for two children, 7 percent for three children and 8.5 percent for four or more.
To get the benefit, households must file their income tax return annually, even if they did not have income in a year. The tax returns for this year could be used as a base for the child benefit calculation, and the payment should start in August next year.
Benefits are paid over a 12-month period from August to July to be consistent with the existing payment period. A household’s benefits would be recalculated every August based on its tax return for the previous year.
The child benefit should be increased annually and adjusted to inflation. Consumer price index changes can be used to keep pace with the cost of living.
However, this expanded child benefit program mainly focuses on low and middle-income households with monthly benefits on a per child basis that phase out with increasing income levels.
The complete phaseout would be at about NT$2.54 million annually. It is expected that about 90 percent of households would receive the benefit.
Although a universal child benefit program should attract support from a majority across the political spectrum, it is ineffective to bolster birthrates and reduce child poverty, as high-income families can have more children and afford to raise them without such benefits.
For example, Taiwan Semiconductor Manufacturing Co is the world’s largest dedicated semiconductor foundry, with a total of 48,752 employees, or about 0.5 percent of the total number of households in 2018.
The average annual salary for these employees is greater than NT$2 million and they have produced 2,682 babies, accounting for 1.5 percent of the total number of babies born nationwide that year.
The child benefit has other distinct advantages besides just boosting the birthrate, the most important of which is to reduce child poverty.
Children from disadvantaged families in Taiwan survive on an average of about NT$32 per meal; 69.7 percent of disadvantaged children do not eat fruit or vegetables on a daily basis; and about 28 percent of children are always hungry, a Taiwan Fund for Children and Family survey of 1,315 students in grades five through nine found.
An expanded childcare program can be highly stimulating to economic growth. With a huge amount of cash transferred to millions of low and middle-income households, private consumption would increase substantially, and make a big contribution to the economy.
At present, children aged 14 or younger account for 12.9 percent of the total population or 3.048 million people. It is estimated that more than 90 percent of the households — and 2.6 million children — would benefit under this expanded program.
The total cost is estimated to be about NT$80 billion, accounting for 4 percent of the 2019–2020 total national budget.
Taiwan is not alone in discovering the wonders child benefits can do for a nation. Many European countries have introduced childcare programs to support families. For example, UK families have been receiving family allowances for nearly 70 years and Canada introduced a more generous child benefit in July 2016.
Canada’s child benefit is a tax-free monthly payment made to eligible families based on household income to help them with the cost of raising children younger than 18.
In 2019–2020, the maximum annual child benefit per child younger than six is C$6,639 (US$5,081), and C$5,602 for each child aged six to 17. In total, the federal program gives C$23.7 billion in child benefit payments to 3.7 million families annually. The child benefit accounts for about 7 percent of the 2019-2020 federal budget.
In the US, neither the Democratic Party nor the Republican Party has any particular interest in a monthly child-benefit program. Instead, they use refundable and nonrefundable tax credits in annual income tax returns to support families with children.
There are other one-shot or short-term childcare benefits given to households in Taiwan by local governments; the payments vary depending on the financial situation of those governments.
To help boost the birthrate and reduce child poverty, the central government should work in conjunction with local governments to integrate these benefits. An expanded tax-free monthly allowance given on a per-child basis that phases out with increasing income levels should serve the said purpose.
Lee Po-Chih is professor emeritus of economics and former vice president of National University of Kaohsiung.
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