Hungary’s Bold Bet on Motherhood: A Game Changer or a Warning for India?

Hungary has made headlines once again with its bold new policy that offers a lifetime personal income tax exemption for mothers who have at least two children. The initiative, announced by Prime Minister Viktor Orbán aims to counter the country’s declining birth rate, a challenge that has plagued Hungary and several other European nations for decades. While the government claims this policy will encourage larger families and strengthen the economy. Critics argue that it might deepen gender inequalities, impose fiscal burdens and fail to achieve its intended goals. The question is whether Hungary’s tax exemption policy is a pioneering approach to a demographic crisis or is an unsustainable strategy that could backfire.

Europe is currently facing a demographic crisis, characterized by steadily declining fertility rates across the continent. Most countries are falling below the replacement rate of 2.1 children per woman, as reported by the World Fertility Report from the UN. Hungary is not exempt from this trend; according to the Hungarian Central Statistical Office, Hungary's fertility rate was approximately 1.51 in 2023. This figure is significantly lower than the threshold needed to maintain a stable population without relying on immigration.

Declining birth rates have far-reaching consequences. A shrinking population means fewer workers in the labour force, leading to slower economic growth and increasing pressure on social security systems. With fewer young people contributing to pension funds and healthcare services, the burden on the working population grows heavier. To address this crisis, various European nations have adopted different strategies. While some have relied on immigration to sustain their workforce, others, like Hungary, have chosen to encourage higher birth rates through financial incentives.

Viktor Orbán has built much of his political identity around the idea of preserving Hungary’s cultural and demographic identity. Unlike other European nations that have turned to immigration to compensate for declining birth rates, Orbán has championed policies that encourage native-born Hungarians to have more children.

In 2019, his government launched a "seven-point family protection plan" to support families with various benefits. This plan includes interest-free loans for married couples who commit to having children, housing subsidies for families, mortgage debt forgiveness for those with three or more children, and lifetime tax exemptions for mothers who have four or more children. The latest expansion of this policy now grants a similar tax exemption to mothers with two or three children, making the benefit more widely accessible. The new policy is set to take effect before Hungary’s 2026 elections, raising concerns that it serves more as a political tool than a sustainable demographic solution.

India’s Fertility Trends: A Comparison

India, like Hungary, is experiencing demographic shifts, but with different challenges. While Hungary faces a population decline, India’s fertility rate has recently fallen to below replacement levels in many states. As India navigates this transition, there are valuable lessons to consider from Hungary’s approach. According to the latest data from the National Family Health Survey (NFHS-5), India’s total fertility rate is 2.0 children per woman. However, in several southern states, including Kerala, Tamil Nadu, Karnataka and Andhra Pradesh, fertility rates have already fallen below the replacement level of 2.1. This regional disparity highlights an important consideration for India’s future demographic policies: while some parts of the country may need measures to sustain population levels, others may not require direct interventions to increase birth rates.

India is also witnessing socio-economic shifts that influence fertility patterns. Rising education levels among women, increased workforce participation and higher urbanization rates have all contributed to declining birth rates, particularly in urban areas. Unlike Hungary, India’s challenge is not an immediate population decline but rather ensuring a balanced demographic transition that aligns with economic and social development goals.

One of the main arguments in favour of Hungary’s policy is that by reducing the tax burden on mothers, families will have higher disposable income, leading to increased household spending and economic stimulation. Proponents believe that encouraging higher birth rates will lead to a stronger, younger workforce in the long run, ensuring economic stability. However, there are several concerns about the policy's economic sustainability. The Hungarian Central Statistical Office reports that Hungary's budget deficit has been considerable in recent years, averaging around 7% of GDP since the COVID-19 pandemic. Although the government has made efforts to manage this deficit, new tax exemptions could result in an annual cost of approximately 170 billion forints (around $441 million) to Hungary. If the policy does not result in a significant rise in birth rates, it could ultimately lead to higher taxes elsewhere or cuts in essential public services.

India, with its vast population, does not face an imminent labour shortage like Hungary. However, concerns about ageing populations in developed regions of the country could push policymakers to consider incentives for larger families. Yet, the key question remains: Is direct financial incentivization the most effective approach or would investments in education, healthcare and work-life balance yield better results?

While the policy is framed as a benefit for families, its implications for gender equality have raised concerns. By linking financial incentives to childbirth rather than employment or childcare support, the policy may reinforce traditional gender roles and disincentivize women from pursuing careers. Currently, Hungary's labour force participation rate for women is approximately 54%, compared to 68.7% for men, according to World Bank Gender Data. 

In India, the Periodic Labour Force Survey (PLFS) 2023-24, published by the Ministry of Statistics and Programme Implementation, reveals that the female labour force participation rate is approximately 41.7%, significantly lower than the male rate of about 78.8%. This stark contrast highlights the difficulties many women encounter when trying to balance traditional responsibilities with their professional goals. Countries with high female workforce participation, such as Sweden and Germany, have successfully addressed demographic challenges by providing robust childcare systems, paid parental leave and workplace flexibility. In contrast, Hungary’s emphasis on tax cuts rather than structural support may push women out of the workforce. This situation mirrors the challenges faced in India, where cultural norms and the lack of supportive systems continue to restrict women’s economic involvement.

A Sustainable Solution or Political Gimmick?

Hungary’s tax exemption policy for mothers represents a bold attempt to address demographic decline, but its long-term effectiveness remains uncertain. While it may provide short-term financial relief for families, its potential downsides include reinforcing traditional gender roles, increasing fiscal burdens and failing to guarantee a rise in birth rates. A more comprehensive approach—one that includes accessible childcare, equal parental leave and work-life balance policies might be a more effective and sustainable solution. Countries that have successfully addressed declining birth rates have done so by ensuring that parents, particularly women, do not have to choose between career advancement and family life.

For India, the lessons from Hungary’s experiment are clear. While some regions may face demographic stagnation in the future, any policy intervention must be holistic and adaptable to India’s socio-economic diversity. Instead of tax exemptions, investments in childcare infrastructure, flexible work policies, and gender-equal parental leave could offer a more sustainable path toward balanced population growth and economic stability. The focus should be on creating an ecosystem where families can thrive, rather than relying on short-term incentives that may not deliver lasting results.