Australia's record-low fertility rate of 1.5 reignites war over family tax benefits and income splitting

The demographic alarm: Fertility at 1.5 and the eroding safety net for families

Australia's fertility rate has fallen to a record low of 1.5 children per woman, prompting a fierce political re-examination of how the country supports families. The decline, long forecast by demographers, has now collided with a heated debate over the fairness of the family tax system, the role of childcare, and whether migration should be the solution to a shrinking workforce.

Professor Peter McDonald, one of Australia's most influential demographers, told the 7NEWS podcast The Issue that the Family Tax Benefit (FTB) has been "taxed away" over decades. In 2022–23, only 42 per cent of families received FTB Part A, while just 35 per cent received Part B – a stark contrast to earlier, more universal support schemes. "We should be looking at better ways to be supporting families with children," he said, describing the current system as "unfair."

The fertility slump is most pronounced among Australian-born women, where the rate is 1.7 – still below the replacement level of 2.1. Meanwhile, the political fight has drawn in competing visions for the 2028 federal election. One Nation MP Barnaby Joyce is championing income splitting for couples, a policy that would allow families to share taxable income and cut their total tax bill, with a Parliamentary Budget Office cost estimate of $12 billion a year.

At the same time, Labor is pushing for universal childcare as a legacy reform, with Prime Minister Anthony Albanese's Child Care Subsidy now providing three days of subsidised care to eligible families. The Coalition has promised a broader families package for the next election, while migration hawks argue that if Australians won't have more babies, the nation must import people – a stance Professor McDonald rebuffs by urging higher permanent migration to boost productivity rather than relying on high-turnover temporary visas.

Political battle lines: Tax breaks, childcare subsidies, and a migration fallback

McDonald's diagnosis: The eroded family benefit and "unfair" tax burden

Professor McDonald's core argument is that the progressive shrinking of Family Tax Benefit payments has left most families without meaningful federal support, even as the cost of raising children has soared. His claim that the FTB has been "taxed away" points to a policy shift from broad-based family assistance to tighter means-testing. Only 42 per cent of families now receive the main Part A payment, meaning the majority of households get nothing. This erosion, he says, isn't just about the birth rate – it makes life harder for couples and reduces investment in children's education.

Barnaby Joyce and the $12 billion income splitting proposal

One Nation MP Barnaby Joyce argues that income splitting would let families keep more of their own money and disincentivise the need for expensive childcare. The Parliamentary Budget Office costing of $12 billion a year makes it one of the most significant tax proposals on the table. Joyce claims it "comes at a saving" because parents at home might not need daycare places. However, Professor McDonald sharply rejects this, warning that income splitting could discourage women – who are now more highly educated and career-oriented than men – from staying in the workforce. The debate thus pits traditional single-earner family support against the modern reality of dual-income households and female labour participation.

Universal childcare: Labor's legacy play and the exclusion of high earners

Prime Minister Albanese has declared universal childcare a personal legacy project, with three days of subsidised care now available to most families. Yet the policy draws a hard line at households earning more than $538,520, who are excluded entirely. This creates a parallel debate about whether universal access should be truly universal or targeted. The childcare push aims to boost workforce participation and ease cost-of-living pressure, but the exclusion of high-income families signals a political balancing act between fiscal responsibility and broad-based appeal.

Migration as demographic brute force

The fertility crisis is feeding directly into the immigration numbers game. Labor wants net overseas migration to fall to 225,000 by 2027–28, the Coalition is targeting below 200,000, and One Nation pushes for just 130,000. Professor McDonald counters that higher permanent migration, not temporary churn, is the smarter move – arguing that the high turnover of temporary visa holders is actually damaging labour productivity. His position, which he acknowledges is politically unpopular, suggests that a more skilled, settled migrant intake could offset a smaller native-born workforce without the inefficiencies of constantly retraining short-term workers.

Who stands to gain – and who loses

If income splitting were adopted, single-earner families with one high-income parent would see the largest tax cuts, while dual-earner couples and high-income households might see little benefit. Universal childcare would be a boon for working parents, particularly women, and would sharply increase demand for early childhood education services. The losers in any income splitting scenario would be the federal budget, which would need to find $12 billion a year, potentially from other spending cuts or higher taxes elsewhere. For childcare providers, a universal policy would be a massive commercial opportunity, but they would also face regulatory pressure to meet the surge in demand without sacrificing quality.

What families, voters and businesses need to prepare for

• Watch the 2028 election platforms: The Coalition has promised a detailed families package; compare its income splitting plan (if included) with Labor's universal childcare pledge. Income splitting would directly lower taxes for couples where one partner earns significantly more, but it may not survive the $12 billion fiscal test.
• Check your current Family Tax Benefit eligibility: Only 42 per cent of families receive Part A – with a record-low fertility rate, the political pressure to expand access is growing. Campaign promises to reverse the erosion could directly put money back in your household budget if enacted.
• For dual-earner households: Labor's universal childcare expansion, even with its high-income exclusion, would dramatically cut care costs. Factor potential savings into family financial plans, but note that the exclusion for households earning above $538,520 remains a political flashpoint.
• Businesses relying on temporary migration: Professor McDonald's call for higher permanent migration, if heeded, would reduce the churn of short-term visa workers. Employers in hospitality, agriculture and aged care should prepare for a regulatory shift that could stabilise but also tighten oversight of their workforces.
• Childcare sector operators: A move toward universal childcare would be a transformational demand driver. Plan now for capacity expansion, workforce recruitment and possible new quality standards as policy gains momentum ahead of the election.