Why Hungary’s lavish family subsidies failed to spur a baby boom

Julia Scharle, 33, has benefited from some of the world’s most generous schemes to support childbearing.

As the Hungarian mother and her husband had their three children, they received more than €80,000 in grants and loans from the government, including a grant of about €6,000 to help them buy a new Renault Scenic minivan — large enough to carry everyone.

The funds also included a €25,000 loan that accompanied the birth of her second child in 2019. Discounts on that loan grew when she had another child; a fourth baby would have pardoned the entire sum, but it was not to be. “We wanted a fourth . . . but we were advised against it for medical reasons. We are a religious family and took this very badly.”

She said the cash helped create more security for families. “It is not a state responsibility, but in the long run a state interest, to make childbearing worth considering.”

Hungary’s family subsidies under the rightwing populist government of Viktor Orbán, who opposes immigration and supports the “traditional” family, are among the world’s most generous.

They include tax breaks that increase with the number of children — mothers of four or more pay no personal income tax — and other allowances. Total family subsidy spending exceeds 5 per cent of GDP, or more than double what Hungary spends on defence.

The subsidies have drawn global attention at a time when many governments of wealthier nations are seeking to reverse faster-than-expected falls in birth rates that pose immense challenges for their economies in the coming decades.

JD Vance, running mate of the former US president and Republican nominee Donald Trump, has repeatedly voiced support. Campaigning for the US Senate three years ago, he said: “Viktor Orbán, who is, of course, the bugaboo of nearly every liberal in the mainstream American media, has implemented a couple of policies that I think are really interesting.

“They offer loans to new married couples that are forgiven at some point later if those couples eventually stay together and have children. Why can’t we do that here? Why can’t we actually promote family formation here in our country?”

Yet generous as these schemes sound for people such as Scharle — whose funding also included a state grant and state-backed home loan totalling €50,000 for a roomy new-build house — it is increasingly clear that there are limits to their effect on Hungarian birth rates.

As the Covid-19 pandemic and ensuing economic crisis engulfed Europe, births there levelled off. A generational dip in the number of women in their 20s and 30s contributed to a slowdown in births.

From a record low of 1.23 children per woman in 2011, the country’s fertility rate rose to 1.59 in 2020, but in recent years it has levelled off to about 1.5. In the first half of this year the fertility rate stood at 1.36 babies per woman, the lowest in a decade, said state statistical service KSH.

In June, births fell to a record monthly low of barely 6,000 children in the country of 10mn, or about half the level of live births seen in Hungary a generation ago, KSH data shows.

One reason for the measures’ failure to bring about a more significant rise, researchers said, was that they were not targeted at people who were struggling financially.

Wolfgang Lutz, founding director of the Wittgenstein Centre for Demography and Global Human Capital in Vienna, said the increases in Hungary’s total fertility rate ahead of the latest slump “were primarily driven by changing patterns in the timing of births, with a slowdown in the previously strong postponement of childbearing”.

Budapest continues to push women to have more babies, sooner, and within a traditional heterosexual family. But like many countries, it is discovering that it is far easier to persuade one cohort of women to bear their children earlier than it is to generate a lasting rebound in births.

Schemes aiming to increase births are being closely scrutinised as dozens of countries across the world experience even faster falls in birth rates than demographers predicted. Globally, fertility rates have fallen from 5.3 children per woman in the 1960s to 2.3; more than half of all countries now have fertility rates below 2.1 births per woman, the level required to maintain a constant population size without migration, according to UN data.

In Hungary, demographers and many women are sceptical about the efficiency — and fairness — of the mix of government support for families, which has largely benefited the middle class.

“Don’t be ridiculous. This system is anything but fair,” said Agnes, a mother of three who took a short holiday by the country’s Lake Balaton with a strict budget that included no restaurant meals or beach toys.

Her income as a hairdresser was inadequate for anything beyond the bare necessities, she said. A fourth child was out of the question, whatever incentives exist — even a complete tax exemption, she said.

“Tax breaks and cheap loans make sense for people who have enough steady income to see any benefit,” Agnes said. “Me? I work as an entrepreneur and pay business taxes, not income taxes.

“I don’t make nearly enough to build a house and benefit from a subsidised loan. I never had a new car and probably never will. So don’t get me started.”

Balázs Kapitány, demographer at the state statistics office, told a June conference that a review of thousands of recipients showed that the subsidies increased the gap between poorer and better-off families.

“These support schemes reshaped the entire family subsidy system, which now targets the most affluent people and increases inequality, which is probably a world first among such programmes,” he said in a presentation seen by the Financial Times. “This is probably a side effect, not the original intent [but] a perverse redistribution.”

Scharle said the financial benefits were not the reason she and her husband, who are now repaying their loans, wanted many children.

Still, Orbán’s government, in power since 2010, continues to spend on the policies, and may substantially expand them. It is considering extending a lifetime immunity from income tax, currently offered to mothers of four or more.

“We will widen that to those with three kids,” Orbán told a demography forum last year. “I’m just waiting for the finance minister to relent.” Such an expansion could multiply by several times the €100mn annual cost of the exemption, economists said.

Orbán has opposed mass immigration into Europe, which he fears would upend the continent’s social and cultural make-up. He was widely accused of outright racism after saying in 2022 that “we do not want to become peoples of mixed race”.

Instead, Orbán has made the birth rate a cornerstone of his policy platform. His chief of staff last year boasted that even as Hungary’s population continued to shrink, 160,000 children would not have been born between 2011 and 2021 without the programme.

The bill has been significant. Since 2019 the newly introduced programmes, such as car and home loans, have cost more than €10bn. That has produced economic effects: home constructions and renovations have increased, for example, say economists.

But ironically, while the ruling Fidesz party hoped the subsidies would build a more affluent and loyal middle class, that has only partially succeeded. Urban, educated youth did benefit, but in the meantime the typical Fidesz voter has become older, more rural and less educated.

“We can brag about the programme, but our voters are elsewhere,” said a person familiar with the government’s political strategy. At the same time, an authoritarian slide and economic stagnation under Orbán have contributed to an outward “brain drain”.

There has also been significant resistance to the ideology accompanying the programme, which promotes the “traditional” family and positions childbirth as the ultimate goal for women. That has led to a backlash, especially from urban liberals.

“They treat you as a baby machine until you can no longer make babies,” said Anna Melocco, a journalist who has written about her decision not to have children.

Melocco grew up wanting a large family but changed her mind aged 29 after being diagnosed with bipolar disorder, fearing she would become an inadequate parent. Some of her partners wanted her to start a family, but now, at 44, she faces no pressure.

“They told us the country belongs to those who fill it with babies,” she said, quoting a right-wing slogan. “Well, that’s not me. This objectified women. Here, have some money, go procreate . . . But nobody thought about the fate of children born that way.”