Poland and Hungary need people. Do more benefits lead to more births?

Dominique Soguel
Amina Bojta is a top earner with a government job and four children. She will be exempt from personal income tax for life under a family benefits program to boost birthrates in Hungary.

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Poland and Hungary are both facing demographic crises, as their younger populations leave for better opportunities abroad, and those remaining are not having children quickly enough to make up the difference. Both countries have launched programs to incentivize an increase in birthrates through perks like cash handouts, interest-free loans, and tax exemptions. But critics say that the programs are mistargeted, expensive, and ultimately unhelpful.

Hungary’s Family Housing Allowance Program offers extremely attractive benefits, even in the assessment of ardent critics. But it is not clear how much these incentives actually change minds; some beneficiaries say that having more kids wasn’t a financial decision. And critics point out that requirements underpinning these pro-family perks skew in favor of the well-off, rather than those who need them most.

Even if birthrates increase, that doesn’t address the underlying cause, warns demographics researcher Marcin Stonawski. “In 20 years, the differences in the standard of living and earnings between Eastern and Western Europe will continue to exist,” he says. “If we do not create good living conditions in Poland, young people will go to Western Europe anyway.”

Why We Wrote This

For populist governments dealing with shrinking populations, the fastest way to repopulate – immigration – is not seen as viable. But encouraging women to have more children instead may be easier said than done.

Economist Amina Bojta is the living definition of a successful mother and professional, smoothly managing the schedules of her four children while holding down a government job. Her second job as “mommy taxi” – shuttling her children around after-school activities – keeps her busy from 5 to 9 p.m.

“We had kids because we love kids,” says Ms. Bojta. “We feel family is a value, that raising children has value.”

But thanks to the Hungarian government, her children will soon provide an additional value. As of January 2020, Ms. Bojta, who earns more than $60,000 annually, will no longer have to pay income tax, because she had the magic number of children required to qualify for this financial break.

Why We Wrote This

For populist governments dealing with shrinking populations, the fastest way to repopulate – immigration – is not seen as viable. But encouraging women to have more children instead may be easier said than done.

This impeccably dressed professional is not the Hungarian average – neither in terms of income nor number of children. She is the exception that Prime Minister Viktor Orbán would like to become the rule as he tries to address his country’s plunging domestic birthrates.

Like nearby Poland, Hungary is facing a demographic crisis as its younger population leaves for better opportunities abroad, and those remaining are not having children quickly enough to make up the difference. But the populist governments in both countries are opposed to one of the most common solutions to such a demographic deficit: immigration.

“Instead of just numbers, we want Hungarian children,” Mr. Orbán declared in February when he announced multiple benefits to encourage larger family sizes. “Migration for us is surrender.”

Nonetheless, leaders in Hungary and Poland are discovering the hard way that encouraging women to have children is easier said than done. Many question whether such policies work or even benefit the right people.

A host of benefits in Hungary

The Family Housing Allowance Program, which was introduced in 2015 and expanded this year, is the primary government vehicle for shoring up Hungary’s population, which is falling by 32,000 per year due to a birthrate of 1.54 children per woman. The baby bonuses promised by the government in February usher in a system of tax breaks, subsidies, and mortgages that scale up with the number of children.

The measures are extremely attractive, even in the assessment of ardent critics. They include a personal income-tax exemption for married women with four children or more; interest-free loans of $36,000 to be canceled after the third child; and a low-interest loan for women under the age of 40 marrying for the first time, with a debt reduction of 30% after the birth of a second child, and full waiver after the third.

But it is not clear how much these incentives actually change minds. Those who benefit welcome the financial boons, but stress that the decision to have a first child – and indeed any child thereafter – is driven by a complex set of considerations in which money is rarely the top consideration. “It wasn’t a financial decision,” says Ms. Bojta confidently.

In Hungary, a maternity leave lasts three years, which sounds wonderful on paper, but is detrimental from a career and earning-potential perspective. Ms. Bojta opted for an extended break to raise her children, who are now 9, 11, 14, and 15. During that time, she also helped her husband, an information technology specialist, run a consulting business.

Dominique Soguel
András Hajdú is using a housing credit to upgrade apartments within the same neighborhood in Budapest, Hungary, where his three children attend school.

Today the couple have a combined annual income exceeding $100,000, several times the national average. The family plans to make use of the interest-free housing credit to buy a new apartment in the city center of Szentendre, a colorful cobbled-street town just north of Budapest, which will save the children commute time.

They will still keep for weekend use the large house they already have there thanks to an earlier loan, which they have already paid off. Ms. Bojta is aware that she belongs to the fortunate few who can afford multiple children independent of government help and hopes such benefits will help others do the same.

“This government wants to support the middle class because they are the ones who pay taxes and support GDP,” she stresses. “One part of the policy is to support the families. The other is to boost the real estate market because it creates jobs and beefs up GDP.”

Those working in the real estate market are banking on the spike in demand.

“Everyone who has three children (or more) is checking out all the subsidies they can get,” says Doron Dymschiz, CEO of real estate firm Duna House in Budapest. “I cannot imagine a young couple who just got married would not take a loan for free, no interest.”

“Many people say they would like to have a second, third, or fourth kid, but we cannot afford it,” says András Hajdú, a father of three who is using a housing credit to upgrade apartments in the same upper-class neighborhood where his children go to school. “Buying a home or a flat is a big problem.”

But critics point out that requirements underpinning these pro-family perks skew their distribution in favor of the well-off rather than those who need them most. For Hungarian sociologist Balázs Krémer, the benefits are just another example of corrupting methods, a “payoff” designed to reward supporters of Mr. Orbán.

“There are very tricky limitations on who can utilize these kinds of state subsidies,” he notes, among them marital status and prior contributions to the social security system.

As such, it’s unclear whether the benefits are worthwhile, experts say. “Financial incentives for childbearing tend to be very expensive compared to the modest number of births they actually induce,” wrote population dynamics expert Lyman Stone in an evaluation of Hungary’s efforts until 2018. “The government is spending huge amounts of money and will probably never reach replacement-rate with this strategy.”

Leaving Poland

Poland’s average birthrate is even lower than that of Hungary’s: 1.48 children per woman. The decline in fertility here is chalked up to women becoming mothers later, with their average age for having a first child today being 27 compared with 23 in the early 1990s. Economists note that the percentage of women who have no children at all and do not intend to have any is higher in Poland relative to other regional countries.

To address the demographic shortfall, the ruling conservative Law and Justice (PiS) party launched the “Family 500+” program, which currently gives every family the equivalent of $135 for every child after the second, regardless of income. And ahead of parliamentary elections in November, PiS has promised to extend Family 500+ to cover all children.

But Irena Kotowska, head of the Center for Demography at the Warsaw School of Economics, considers Family 500+ to be a waste of public money. She says that while birth increases were recorded in 2016 and 2017, they were due to a range of temporary factors, including a new option to split parental leave. Indeed, 2018 saw a decrease in births again. And she warns that the program will have a longer-term negative effect.

“In poorer, less-educated families, it causes the effect of getting used to social benefits,” Professor Kotowska says. “Women in less-educated groups are withdrawing from the labor market because of [this program]. ... These women will not later have the right to a pension, will depend on social benefits and their husbands’ support.”

A May report evaluating the program by researchers from the Warsaw School of Economics, among others, concluded that the program has not achieved its goal, although it cost $19 billion.

Aggravating the demographic challenge, Poles migrated en masse to Western Europe after entering the European Union. Marcin Stonawski, professor in the demography department of Krakow University of Economics, says investment to boost birthrates may not be enough to curb the trend.

“We have to bear in mind that in 20 years, the differences in the standard of living and earnings between Eastern and Western Europe will continue to exist,” he says. “If we do not create good living conditions in Poland, young people will go to Western Europe anyway.”

For Anna Zarzycka, a mother of four children in Poland, including one who has cerebral palsy, the government benefits have been a much-needed lifeline. “In a grocery store we usually spend about 300 zlotys [$80] per week, so this money is a huge support for us,” says the former German teacher and folk dancer. “It is better to receive cash. We know better what our needs are.”

While she is the first to value the benefits, she shares the view of critics that the decision to expand the program is a populist “preelection trick.”

“I do not think it will increase fertility rates,” she says.

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