Hungary recently announced a sweeping tax exemption for mothers of two or more children, just a year ahead of the 2026 elections. Prime Minister Victor Orban declared that mothers with three children will be exempt from income tax starting October, while exemption for mothers with two children will be phased in from January. This move extends an existing benefit that already exempts 70,000 mothers of 4 or more children, costing the government $130 million annually.

Advertisment

Orban called this 'the biggest tax reduction programme in Europe,' insisting that economic revival will offset costs while reducing public debt and the deficit. This comes as Hungary's inflation remains one of the highest in the EU. Monthly price growth also surged to its highest level in 2 years, driven by rising food, service, and fuel costs.

Tax breaks for mothers: a broader global plan?

Hungary's tax cuts for mothers follow a broader trend of countries incentivising motherhood by offering multiple tax exemptions and monetary support. Elon Musk recently praised the initiative as a 'great policy.' Musk has long warned of population decline and its economic consequences. 

Advertisment

Globally, the total fertility rate was 2.3 children per woman in 2023. This was more than twice in the 1950s. Multiple factors can be attributed to this decline, including lifestyle changes. The nuclear families, which became the norm in the last 2 decades, are slowly taking a more 'isolated' turn, with people favouring late marriages and no children. The rising cost of living is another factor. Inflation risks far outweigh the emotional rewards of having a family. Nearly every country in the world is reporting declining birth rates.

This decline can be rather drastic. For example, it took Iran just 10 years for fertility rates to fall from more than six children per woman to fewer than three children per woman. 

The economic consequences are evident. Since the 1980s, major economic powerhouses, including China and Japan, have been suffering the aftereffects of low fertility rates. 'Consumption decline' is a common theme while addressing their declining GDPs. The population decline threatens economic participation on a broader level. According to experts, negative population decline leads to an 'empty planet' scenario where 'knowledge and living standards stagnate for a population that gradually vanishes.'

Advertisment

Governments are now using multiple tactics to revive fertility rates. Tax exemptions address one of the factors responsible for this decline. Tax exemptions for mothers can reduce household burden and ease monetary pressures. Apart from Hungary, countries like France, South Korea, and Russia are also experimenting with various such incentives. South Korea, for example, had spent over $253 billion on baby-making incentives, including state-sponsored dating. A much more radical scheme under consideration is cash handouts for each baby. Such schemes allowed South Korea to record an increase in annual birth rate in 2024 - the first since 2015. 

Can such tax exemptions improve fertility rates? We'll have to see the results as this becomes more mainstream in government budgets.