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The Australian baby bonus offering parents $3,000 on the birth of a new child was announced on 11 May 2004. The availability of five years of birth data following the introduction of the baby bonus allows for a more comprehensive analysis of the policy implications than is current in the literature. The focus of this paper is to identify if there is a positive fertility choice response to the introduction of the Australian baby bonus policy and if this response is sustained over time. To do this, 19 years of birth and macroeconomic data, beginning in 1990, is analysed using an unobservable components model. The results indicate a significant increase in birth numbers ten months following the announcement of the baby bonus, and this overall increase was sustained up to the end of the observed period. A cumulative growth in birth numbers which commenced in January 2006 slows in 2008 and 2009. It is suggested that the initial increase in births, identified in March 2005, is a direct fertility response to the introduction of the policy, and that the subsequent change in the growth of birth numbers may be the result of a delayed effect working through a number of channels. We estimate that approximately 108,000 births are attributable to the baby bonus over the period, at an approximate cost of $43,000 per extra child.
