Child benefits alone will not reverse the population decline in Hungary and Poland, as the examples of Germany and France show

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By Olivier Bault.

This article was originally published on Kurier.plus by the Felczak Institute of Polish–Hungarian Cooperation.

Central Europe – Budapest hosted its third demographic summit on September 5–6, attended by representatives from several Central European governments, including Czech PM Andrej Babiš, Serbia’s President Aleksandar Vučić, and ministers from Poland, Latvia and Bulgaria. Countries of the former Eastern Bloc have been experiencing a very serious demographic crisis since the fall of communism, and only in recent years have some of them started to try to do something about it. With total fertility rates (TFR) way below the European Union’s average of about 1.6 children per woman, those countries could face a steep fall in their population in the coming decades, unless they either resort to mass immigration, as Western European countries have done since the 1970s, or take steps to reverse this dangerous trend. The need for pro-natalist policies had long been neglected in the post-communist countries of Central Europe, in part because of the many stringent needs in other areas after their transition to market economies, such as public health, road construction, defence, and so on. The demographic deficit was further aggravated when those countries joined the European Union in the first decade of the new century, because of mass emigration. During the current decade most regional leaders have become more aware of the urgency of the situation – as was again made visible at the Budapest summit – with Hungary leading the way since 2010 and Poland following suit since 2015. Both countries have had some success in reverting the downward trend in fertility rates, but they are still below the European average and far from the level of 2–2.1 children per woman which is considered sufficient for new generations to replace older ones (replacement-level fertility).

Higher fertility rates but less women of reproductive age in Poland and Hungary

The TFR of a population is the average number of children a woman would have during her life if she were subject to the current age-specific fertility rates throughout her lifetime and if she were to live to the end of her reproductive life. The number of actual births also depends on the number of women of reproductive age in a given population. Thus, although the TFR rose from 1.25 to 1.49 between 2010 and 2018 in Hungary, and from 1.29 to 1.44 between 2015 and 2018 in Poland, the actual number of births has been declining since highs of 93,063 live births in 2016 in Hungary and 401,982 in 2017 in Poland, because of the decreasing number of women of reproductive age in both countries. One point is that pro-natalist policies should have been adopted earlier, before the drop in the number of women of reproductive age, but another barrier to a significant reversal of the situation may be cultural, as was stressed at the Budapest demographic summit. For this reason, it is worth comparing the demography and policies of Hungary and Poland with those of two Western European countries with generous pro-family policies that nonetheless have differing effects on their respective TFRs: France, which had a fertility rate of 1.87 children per woman in 2018 (one of the highest TFRs in the EU, albeit on a downward trend), and Germany, with a TFR of 1.57 children per woman in 2018, a little below the rate of 1.59 recorded in 2016, but higher than in previous years, as the German fertility rate stood at only 1.33 children per woman back in 2006. To make sense, however, such a comparison should take into account the impact of immigration on fertility rates in both countries.

The impact of immigration on fertility rates in Germany and France

Indeed, while Germany’s TFR for 2016 was at its highest level since 1973, the fertility rate for women with German citizenship, including those from a migrant background, was only 1.46, compared with 2.28 for foreign women. In neighbouring France the fertility rate reached its highest level (2.03 children per women) in 2010, making France the country with the highest fertility rate among EU members. However, since 2015, the French TFR has been steadily declining. Some have attributed this fall to a reduction in state incentives for families with children. However, the changes have mostly affected wealthier families, for whom reduced allowances and new limits on tax breaks are unlikely to have weighed much on their decisions whether or not to have children. It is also to be noted that the downward trend also concerns women who were born outside France. In 2017, the TFR for migrant women born outside France was at 2.6, against 2.8 in 2014, while the TFR for women born in France or born as French citizens (who also include those with a migrant background, i.e. children of foreign-born immigrants) was at 1.77. This means that although the first category accounted for 12% of all women of reproductive age, they were responsible for 19% of births. It is also interesting to see that among that category of migrant women (born outside France), women from North Africa had a fertility rate of about 3.5–3.6 children per woman, those from Turkey had a fertility rate of 3.12, and those from Sub-Saharan Africa had a TFR of 2.91.

One also has to keep in mind that many women not counted as migrants are from a migrant background, which means that they have at least one parent who was born abroad as a foreigner (this being a restrictive definition of people with a migrant background). Although in both France and Germany the fertility rate for women in this category tends to approach that of women without a migrant background, they still have a positive effect on those countries’ total fertility rates. By the definition given here, as of today roughly one-quarter of Germany’s population are immigrants themselves or come from a migrant background. In France such statistics do not exist, but there are some indicators, such as the percentage of babies given Arabic-Muslim first names, which reached 18% in 2016 and 21.6% in 2018. Another indicator used by those who denounce an ongoing “replacement” of population through mass immigration and low fertility rates among natives is the test for sickle cell disease, conducted by hospitals in continental France. Such tests are carried out on babies when both parents come from regions of the world having a population susceptible to this kind of genetic disorder, namely from Africa and the Middle East, but also from the French Caribbean, which makes the measure of those coming from a migrant background partly inaccurate. Moreover, it does not tell us whether a baby’s parents were born in France or abroad, as it is merely an indication of their extra-European ethnicity. Almost 40% of newborns were tested for sickle cell disease by hospitals in continental France in 2016, up from 20% in 2001 and 31.5% in 2010.

However, in France, which is still the EU country with the highest fertility rate, the impact on the country’s TFR from women born in France from a migrant background is said to be minimal, so one may ask why similarly generous pro-family policies seem to have had a much better effect in France, with a fertility rate for natives at 1.77 children per woman, than in Germany, where the fertility rate for natives is 1.46. And why have the pro-family policies being implemented on a large scale in Hungary, and on a more modest but historic scale in Poland, failed to bring those countries’ fertility rates at least to the levels observed in France?

Pro-natalist policies in Poland, Hungary, Germany and France

As a percentage of GDP, public spending on family benefits (including cash benefits, services in kind and tax breaks for parents) was until recently at a similar level in Hungary and France – close to 4% of GDP, according to OECD figures for 2015. However, with new measures put in place since then, Hungary’s figure has now come close to 5% of GDP for 2019, according to Hungarian officials. Germany’s public spending on family benefits is less than 3.5% of GDP, while Poland’s has risen, with the introduction of the 500+ monthly child allowance from 2016, from around 2% of GDP to above 3%. Poland and Hungary are among the EU countries with the largest share of social spending going on family benefits (respectively third and fourth, while Germany comes fifth).

In Poland, starting this year, the 500+ allowance has been extended to the first child without any condition on income. When it was introduced in 2016, it was paid only to low-income families for the first child, but to all families for the second and subsequent children under 18. The change is probably linked to the fact that the 500+ programme in its original form seems to have had a significant effect on second or higher-parity births only, and a very limited effect, if any, on first births. Moreover, with the number of women of reproductive age decreasing fast, the number of births has been declining too, since the record 402,000 births registered in 2017. In 2018 there were 388,000 births, and if the trend observed in the first half of 2019 is maintained, there may be as few as 365,000 this year. The 500+ programme provides a monthly allowance of 500 zloty (about €115) per month per child. This is to be compared with an average gross monthly salary of about 4,800 zloty (before compulsory social security contributions and income tax), which leaves a net income of about 3,400 zloty (some €790); the minimum gross monthly salary stands at 2,250 zloty, giving a net income of 1,630 zloty (€380) per month. The recent election promise made by leaders of Law and Justice (PiS) to raise the minimum gross salary to 2,600 zloty from January 1, and subsequently to 3,000 zloty in 2021 and 4,000 zloty by the end of 2023, can probably be seen in the context of a general effort to increase family incomes in Poland so as to enable people to raise more children.

Another measure introduced in 2019 by Poland’s current government to favour families with children is the “Mama 4+” allowance, which is to be paid to mothers of at least four children when they reach the age of retirement, if they had to stop working (and hence paying contributions) to raise their children. This allowance is equal to the minimum old-age pension, which stands at 1,060 zloty (€245) monthly in 2019.

PiS has also left in place a pre-existing tax benefit which allows families with children (subject to an income ceiling for families with one child only, and regardless of income for families with at least two children) to reduce their income tax by an amount of 92.67 zloty (€21) per month for each of their first two children, by 166.67 zloty (€39) per month for the third child, and by 225 zloty (€52) for the fourth and subsequent children.

Most other allowances paid to Polish families with children are one-off, means-tested benefits which existed before 2015.

Last February in his State of the Nation address, Hungary’s Prime Minister announced new measures for families with children: access to interest-free loans, extension of preferential loans under an existing family home purchase scheme (CSOK – see here for details on this programme and its effects on natality), the extension of repayments by the government of mortgages for families raising two or more children, new life-long exemptions from income tax for women who have had at least four children, a new car purchase subsidy programme for large families, 21,000 new places in crèches across the country, and childcare fees for grandparents paid for by the state. These new benefits are added to existing ones, such as the generous tax exemptions for children which were introduced in 2011–12 in the form of sums that can be deducted from the taxpayer’s tax base. As of 2018 the deductible allowance amounted to, per month and for each child, 66,670 forint (€200) when there is one dependent child in a given family, 133,300 forint (€400) when there are two such children, and 220,000 forint (€660) when there are three or more children. This translates into a tax reduction, respectively, of about €31, €63 and €104 per child per month. The family tax relief can be claimed for a child from the 91st day of pregnancy. If the deductible amount exceeds the taxpayer’s tax base, 15% of the unused amount of the child allowance can be deducted from health and pension insurance contributions. The Hungarian state also pays to parents a family allowance for children from their birth until they finish their education (but no later than the school year in which they turn 20). This allowance amounts to 12,200 forint (€37) per month for one child, 13,300 forints for each child when there are two children, and 16,000 forints (€48) when there are three children or more. All of these amounts are to be compared with the average gross monthly salary, which amounts to some 365,000 forint, or the average net salary of 242,300 forint (€730). Other advantages introduced by Viktor Orbán’s governments include lower prices for gas and electricity and various other benefits.

In Germany, the child allowance paid to families amounts to €204 per month for each of the first two children, €210 per month for the third child, and €235 per month for each additional child under 18 (under 21 for children seeking work, or under 25 for students). Parents who together earn less than €900 gross per month (€600 in the case of single parents) receive an additional allowance of €170 per child per month. Unemployed parents get an allowance from their Land (state), and allowances such as parental benefits are also paid for a limited period of time. There is also a child tax exemption, which amounted to €7,356 in 2017, but which cannot be taken cumulatively with the child allowance – the tax office will compare the two amounts to help taxpayers choose the best solution for them. This is to be compared with an average gross monthly salary of €3,770 in 2017.

In France, child allowances are paid to families with at least two children, and after the system was reformed in 2015, they now depend on a family’s income. The allowances may amount to €34 or €132 per month for two children, €75, €150 or €300 for three children, and €43 or €169 for each additional child, with an additional amount of €16 or €66 for children aged over 14. Additional allowances are paid for a limited period of time of up to three years to parents whose income does not exceed a certain level. There is also a family-quotient system, which allows taxpayers to split their income with their children in order to determine their taxation rate. The first and second child are counted as half, which means that a family of two parents having two children will divide their income by three to determine the applicable rate of income tax. Starting with the third child, each child is counted in full. Since 2014, the total tax relief that can be obtained from this income-splitting system has been limited to certain amounts. The average net monthly salary in France is about €2,250 (after social contributions but before income tax).

Marriage statistics and fertility rates

The income test introduced in the French child benefits system in 2014–15 is often cited as a major cause of the current drop in fertility rates: from 2.03 children per woman in 2010 to 1.87 in 2018. However, there may be a deeper underlying factor behind this recent trend. With 226,671 marriages (plus 7,244 “gay marriages”), 2017 was the second worst year for marriages (after 2016) since the end of World War II, and this marked a fall in the number of marriages by more than 17% over a ten-year period. Many people now prefer civil unions (“PACS”, with 186,614 such unions in 2017) or no formal union at all, and some 60% of children are now born outside a marital union (the highest rate in the EU). Women also get married later, the average age of brides being 35.8 in 2017 (38.3 for men), compared with an average age of 30.3 in 1997 (32.9 for men). As was shown in past studies like this one published in 2013 by the French National Institute of Demographic Studies (INED), unmarried couples are less likely to have children. Based on data from 2011, the INED study showed the following proportions of people living as a couple and having at least one child:

 

In Germany, where the total fertility rate is still lower than in France but has gone up in recent years, marriages are on the rise, from a total of 373,655 in 2013 to 416,615 in 2018. The average age of marriage was 31.5 for women and 34 for men. In Poland, the number of marriages has gone up too, from an all-time low of about 180,400 in 2013 to about 192,600 in 2017 and a similar number in 2018. On average, women who got married in 2018 in Poland were 28 years old, while the average age for men was 30. For both sexes, the newly-wed were on average four years older than in 2000. But it is in Hungary, whose successive Fidesz governments have been placing emphasis on natality for almost a decade, where the marriage boom is most noticeable in all age groups. While the number of marriages had dropped by 23% between 2002 and 2010 under previous leftist-liberal governments, it has since then shot up by 42%, from 35,520 in 2010 to 50,572 in 2017.

Depopulation in Central Europe vs population replacement in Western Europe

It is too early to say, however, whether the Hungarian marriage boom and the small rebound in Poland will lead to a corresponding rise in the number of births. Nevertheless, the experience of France and its traditionally very generous welfare and child allowance systems shows that, although such child benefit policies can help mitigate or postpone for a while the effect of cultural changes that lead to Europeans having fewer children and having them later, they cannot alone reverse the underlying negative trends. Without resorting to mass immigration as in Western Europe, Central Europe will see its population shrink significantly, by nearly a third by the end of the century if current trends cannot be reversed fast. Already, Poland and Hungary are experiencing negative population growth rates. While the population decline may amount to 31% for the whole Visegrád Group, from 63.8 million inhabitants today to 44 million in 2100, it is expected to be as much as 40% in Poland, from 38 million inhabitants today to 23 million in 2100. This is why supporting families and promoting marriage and the traditional family model, while facilitating child care for families where both parents are working, have become urgent priorities for both Hungary and Poland, as they should be for a majority of Central European countries. Child benefits alone cannot change the situation. László Kövér, the speaker of the Hungarian National Assembly, pointed last August to the need for a change in mentalities for pro-natalist policies to succeed, and PM Viktor Orbán even said at the Budapest Demographic Summit in the first week of September that “the first precondition for the success of Hungary’s demographic policy is that Christianity must regain its strength in Europe.”

At the same meeting, Czech Prime Minister Andrej Babiš talked of population decline as posing as great a threat to Europe as climate change. Indeed, as former Australian PM Tony Abbott put it in Budapest, quoting his successor Malcolm Turnbull, “the gravest threat to Western society… is neither global warming nor international terrorism. Rather it is the unprecedented, sustained decline in the birth rate… (so that) great cultures like Italy, Spain, Greece and Japan could become functionally extinct within a century”, and “having fewer children in Western countries will hardly make the climate better, given all the children that will be born elsewhere. It will, though, certainly make Western countries smaller and probably weaker too.”