Hungarian Prime Minister Viktor Orban proposes a lifetime income tax exemption for mothers with two or more children, aiming to address the country's declining population. The ambitious plan, touted as the largest tax reduction program in Europe, faces scrutiny due to Hungary's economic challenges.
Earlier this year, Donald Trump announced his desire for Americans to have more babies, proposing measures to facilitate this, including expanding access to in-vitro fertilization and increasing spending in areas with higher marriage and birth rate s. Across the Atlantic, Hungarian Prime Minister Victor Orban unveiled a bold new initiative. He aims to introduce a lifetime income tax exemption for all women who have two or more children.
Orban took to X, formerly known as Twitter, to announce, '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!'Ben Habib, chairman of the Great British Political Action Committee and former co-deputy leader of Reform UK, believes Orban's proposal is motivated by more than just securing votes. Habib suggests that the focus lies in addressing Hungary's declining population, which has shrunk to 9.9 million this year, down from 10.7 million in 1980, according to Macro Trends data. The primary reason for this decline is the plunge in Hungary's birth rate. Experts emphasize that to maintain the population level, the birth rate needs to be at least two births per woman, a level not achieved since 1979, according to World Bank data. The birth rate for 2023 stood at 1.5 children per woman.Win Thin, global head of markets strategy at financial company Brown Brothers Harriman, attributes the decline in population to a natural phenomenon as countries become wealthier. 'As economies grow and more mature, the birth rates decline,' he explains. This is where Orban's ideas come into play, as financial incentives can help boost the birth rate. Robert Wright, professor of economics at Central Michigan University, agrees, stating that if there is no biological reason behind the falling birth rate, it can be reversed with the right incentives. Hungary already offers scaled subsidies for families with children. For instance, two-parent families with one child receive 12,200 Hungarian Forints ($32) per month for that child, while 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 receive additional support. There are also other benefits, including interest-free loans for younger women.The sliding scale of benefits may appear peculiar, but there is a rationale behind it. As a family expands, expenses tend to rise rapidly, explains Pete Earle, director of economics and economic freedom at the American Institute for Economic Research. 'When a couple has three children, they will need a house, not just an apartment,' he points out. Larger vehicles might also become necessary to transport 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. Wright notes that this proposal, especially for higher-income earners, would be particularly substantial. However, Hungary faces more than just population decline. The country has recently grappled with economic challenges that could make subsidizing larger families even more difficult. These include sluggish growth, high inflation, and a lack of foreign investment. GDP contracted by 0.9% in 2023 and grew modestly by 0.5% the previous year, according to Trading Economics data. The government also registered a deficit of 6.7% of GDP in 2023, followed by an estimated nearly 5%, which is likely to be similar this year. Meanwhile, the country's inflation is on the rise, reaching 5.5% in January, up from 3% in September. 'Hungary has tremendously big budget deficits, so I don’t know how they are going to afford Orban’s new proposal,' Earle expresses concern.Despite the differences in approach, Orban's proposal, while distinct from Trump's, is likely to strengthen the relationship between the U.S. and Hungary. Marc Chandler, chief market strategist at Bannockburn Global Forex, states that 'Orban is one of the winners in the U.S. election.
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