Earlier this year, Donald Trump announced that he would like Americans to have more babies and pushed forward ways to help that happen. These include expanding access to invitro fertilization and increasing spending in areas with higher marriage and birth rates.
But over the Atlantic, Victor Orban, Hungary’s Prime Minister, presented an audacious new idea. He wants to introduce a lifetime income tax exemption for all women who have two or more babies.
Orban stated on X, “2025 is the year of the breakthrough! We are launching the largest tax reduction program in Europe. We are introducing full, lifelong income tax exemption for mothers with two and three children. There’s nothing like this in the whole world!”
“Hungary’s cost of living is high, so the government needs to subsidize families,” says Ben Habib, chairman of the Great British Political Action Committee and former co-deputy leader of Reform UK. “It makes it easier for mothers to stay home.”
TRUMP AND ‘NO ONE ELSE’ CAN END THE UKRAINE-RUSSIA WAR, US ALLY SAYS
Orban’s proposal seems to be about more than catching votes. Rather, the focus looks like a way to fix the country’s declining population, which has fallen to 9.9 million this year, down from 10.7 million in 1980, according to data from Macro Trends. The drop is primarily due to the collapse in Hungary’s birth rate. To sustain the population level, the birth rate needs to be at least two births per woman, experts say. But that hasn’t happened since 1979, according to World Bank data. The birth rate for 2023 was 1.5 children per woman.
A declining population is a natural development as countries get richer, says Win Thin, global head of markets strategy at financial company Brown Brothers Harriman. “As economies grow and more mature, the birth rates decline,” he says.
And that’s where Orban’s ideas kick in, because giving out money can help increase the birth rate. “If there is no biological cause to the falling birth rate, you can reverse it, but you need to have incentives,” says Robert Wright, professor of economics at Central Michigan University.
Hungary already has scaled subsidies for families with children. For instance, two-parent families with one child get 12,200 Hungarian Forints ($32) per month for that child, whereas couples with three or more children receive 16,000 ($41.60) forints per child per month, according to the Hungarian government. Single parents and those with children with disabilities or long-term illnesses get more money. There are other benefits, including interest-free loans for younger women.
AS THE US-UKRAINE RARE EARTH MINERALS DEAL TAKES SHAPE, HERE’S WHAT TO KNOW
It might seem strange to have a sliding scale of benefits, but there is some logic. As a family gets larger, the expenses can grow even fast, says Pete Earle, director of economics and economic freedom at the American Institute for Economic Research. “When a couple have three children, they will need a house, not just an apartment,” he says. You could also see a need for bigger cars to ferry children to and from school.
Orban’s new proposal of eliminating income tax for mothers of two or more children, could be even more generous than the current subsidies. “What he’s proposing is even bigger, especially for higher-income people,” Wright says.
However, the drop in population isn’t Hungary’s only challenge. The country has recently suffered economic problems that will make subsidizing people to have larger families even harder. These include slow growth, high inflation and lack of foreign investment.
GDP contracted by 0.9% in 2023 and grew by a modest 0.5% last year, according to data from Trading Economics. The government also registered a deficit of 6.7% of GDP in 2023, followed by an estimated nearly 5%, which will likely be similar this year. Meanwhile, the country’s inflation is rising. It was 5.5% in January, up from 3% in September.
“Hungary has tremendously big budget deficits, so I don’t know how they are doing to afford Orban’s new proposal,” Earle says.
Nevertheless, Orban’s proposal, while different from Trump’s, will likely help secure a closer relationship between the U.S. and Hungary. “Orban is one of the winners in the U.S. election,” says Marc Chandler, chief market strategist at Bannockburn Global Forex.
Read the full article here
