Family Allowance Issues

Hungary in Comparison to Other Countries1

Civic Review, Vol. 14, Special Issue, 2018, 290-301, DOI: 10.24307/psz.2018.0419

Dr Judit Sági, Associate Professor, Finance Department, Institute of Finance and Accounting, Budapest Business School, Budapest (This email address is being protected from spambots. You need JavaScript enabled to view it.); Dr Csaba Lentner, Professor, National University of Public Service, Budapest (This email address is being protected from spambots. You need JavaScript enabled to view it.); Dr Tibor Tatay, Associate Professor, Széchenyi István University, Győr (This email address is being protected from spambots. You need JavaScript enabled to view it.).


Decline in the desire to have children is a common problem in the developed world, and it is a challenge in post-soviet countries, including Hungary. Changing lifestyles, perceptions and financial stress are the underlying reasons. The Czech, Slovakian, Spanish, Portuguese, Irish and French government interventions are analysed with focus on family subsidies and fiscal policies, in comparison to the decisions taken by the Hungarian government after 2010. Research is built on the assumption that child benefits (family allowances and housing subsidies) increase the willingness to have children.

Journal of Economic Literature (JEL) code: D6, H2, I38, J11, J13, R21
Keywords: fertility rate, childbearing, public benefits, family subsidies, Hungary, Czech Republic, Slovak Republic, Spain, Portugal, Ireland, France

Desire to have children

In the previous decades the desire to have children has fallen significantly in the countries of the European Union. After World War II, living standards improved, people married at an early age and so the birth rate increased in the Western European countries. In Central and Eastern Europe social expectations and the uncommon use of contraception prevented childlessness. The trend started to change in the 1940s in Western Europe, and in the 1960s in the Eastern Europe. Self-fulfilment, the primacy of individualism, increasing expectations at workplaces, and fall in traditional family patterns have all worked against childbearing. In the Eastern countries political and economic transition caused insecurity and led to decrease in fertility rates. Altogether in the EU Member States the population is not reproduced by birth. Fertility rates have fallen below the required level of 2.1 (Sobotka, 2017, pp. 17-53).

In several countries the demographic tendencies were tracked, and active family policy measures were introduced to promote childbearing. Developed countries have a family policy and subsidy system in place to initiate childbearing and help child raising. In a narrow sense family policy can be interpreted as the total set of government subsidies and services with a purpose of supporting families who raise children. In this respect cash subsidies and family aids are direct forms of policy tools, and the tax allowance is an indirect form of them.

In 2010, the Hungarian government re-defined its family policy and family subsidy system, and in 2011 the family tax allowance became a major pillar of the subsidy regime. Below is a description of this system and an explanation of the main elements of the child benefits in some EU countries.

The scope of the investigation was extended to the V4 (“Visegrád Four”) countries, and to EU Member States with relatively high and low fertility rates (France and Ireland versus Portugal and Spain). The countries’ fertility rates are shown in Figure 1.

Nearly all European countries have fiscal initiatives for families raising children, and in a part of them, expenditures are phased into the personal income tax regimes. In this regard, tax credits, allowances or rate reductions serve to grant social benefits to families. Below family tax benefits are analysed in the above-mentioned eight countries, with focus only on elements which provide benefits for families.

France and Ireland impose taxes on combined family earnings: partners’ incomes are added up and taxed jointly. This family-based taxation does not necessarily promote child bearing per se, because its main target is the horizontal equity for households with different compositions of incomes. The additional element of tax regimes (whether they are based on families or on individuals) is the granting of family tax benefits.

Tax benefits can be granted in different forms: governments might allow certain exemptions from the personal income tax base, allowances that can be deducted from the taxable income, credits that can be deducted from tax liability, tax rate reductions or tax deferrals. The most common form of benefits includes various tax allowances, as they cause less distortions in the tax base.

Czech republic

In the Czech Republic, families benefit from both tax credits and tax allowances. The previous can be used to directly reduce a person’s tax liability, while the latter reduces the tax base (OECD, 2017, pp. 233-242).

Taxes normally apply to individuals, but there are a couple of family benefits. A flat-rate of 15 per cent is payable on personal income taxes; and an 11 per cent contribution on employment (including 4.5 per cent health insurance and 6.5 per cent social insurance contribution).2

All taxpayers are entitled to tax credit, in an amount of CZK 24,840 (approx. EUR 9503).4 For taxpayers raising children, the tax credit is CZK 13,404 for the first child, CZK 17,004 for the second child, and CZK 20,604 for the third and each additional child. Since 2016, a new form of tax credit also applies to families with a child visiting nursery school (for preschool children, including those who go to kindergartens, up to starting primary school): in the amount of the pre-school facility fees, but no more than the amount of the minimum wage, per child. The adoption of credit in the amount of nursery school fees, and increase in the benefit for the second or subsequent children was included in the act on childcare in 2016.

The other form of family benefits is the non-taxable childcare allowance, which is subject to certain income criteria. The precondition of this allowance is that the family’s income does not exceed 2.4 times the family poverty line, whereas the amount of the poverty line depends on family type. (It becomes higher as children grow older and with the number of members in a household.) The family income includes both parents’ earnings, net of income tax, and employees’ social security and health insurance contributions. Child allowance is CZK 500 per month per child until the child becomes six, CZK 610 between 6 and 15, and CZK 700 between 15 and 26 years.


In Poland taxes are imposed on individual incomes, but married couples can opt to pay taxes on their joint incomes. The personal income tax cannot be chosen by those who pay family-based taxes (OECD, 2017, pp. 453-462).

Progressive taxation applies: up to PLN 85,528 (approx. EUR 19,9705), 18 per cent of the tax base, less a basic tax credit of PLN 556.02 must be paid. Above PLN 85,528, the tax liability is PLN 14,839.02 plus 32 per cent of the surplus above the PLN 85,528. The social security contribution payable for employees is 13.71 per cent of the gross wage; this includes 9.76 per cent pension insurance and 2.45 per cent sickness/maternity insurance.

Similarly to the Czech Republic, there is a basic relief for taxpayers, a non-refundable tax credit of PLN 556.02 per person. Families with children are granted a further tax credit from the payable tax in the monthly amount of

  • PLN 92.67 (PLN 1,112.04 per annum) for the first child, if the annual income received by the parents (married couples or single parents if they meets special requirements) does not exceed PLN 112,000. For other parents the income threshold is PLN 56,000;
  • PLN 92.67 (PLN 1,112.04 per annum) for the second child;
  • PLN 166.67 (PLN 2,000.04 per annum) for the third child;
  • PLN 225.00 (annually PLN 2,700.00) for the fourth and every subsequent child.

Since 1 January 2015, taxpayers subject to the payment of taxes that are less than the amount of tax credit for children may claim the remaining benefit from the social security and health insurance contributions (with some exceptions).

Slovak republic

In the Slovak Republic family benefits are not as substantial as for example in the Czech Republic or in Hungary. A minor sum of tax credit is provided for families raising children, which is automatically indexed for growth in the minimum living standard. In 2016 the monthly tax credit was EUR 21.41 per child (the annual amount was EUR 256.92) (OECD, 2017, pp. 475-486).

If the credit exceeds the tax liability, the excess is paid to the taxpayer. This is exceptional, as personal income tax regimes are designed not to discourage employment by tax deferrals. However, in order to receive the tax credit, the parent must earn at least 6 times the minimum monthly wage in a year, which was EUR 405.0 in 2016 (thus the total annual earnings must be at least EUR 2,430.0).

In 2013, the previous flat tax rate of 19 per cent was replaced by a new two-bracket tax. The ceiling for the first bracket is 176.8 times the poverty line (equal to EUR 35,022.31 in 2016), and this secures automatic indexation. The upper rate is 25 per cent. The personal income tax base can be reduced by the social security contribution paid on employment; and they are capped at the average wage level times five. The 13.4 per cent contribution comprises 4.0 per cent health insurance and 9.4 per cent social (sickness, retirement, disability and unemployment) insurance.

A basic tax allowance for all taxpayers is set at 19.2 times the poverty line for taxpayers (this amount was EUR 3803.33 in 2016). Besides, an additional allowance is given to the principal earner in respect of a spouse living in a common household if the spouse earns no more than EUR 3803.33, and, for example, takes care of children younger than 3 years.


As a general rule, in Spain tax is levied on individuals. Nevertheless, families have the option to choose tax payment as married couples or as heads of households (the latter are unmarried or separated individuals with dependents). In such cases families submit tax returns collectively, about the combined income of spouses and dependents (OECD, 2017, pp. 499-508). Personal income tax is progressive (Table 1).


6.35 per cent social security contributions must be paid by employees (of which 4.7 per cent is paid to old-age pension funds or sickness and disability funds, 1.55 per cent to the unemployment and 0.1 per cent to the fund for professional training). Contributions range between EUR 9172.80 and EUR 43,704 depending on annual gross employment incomes (in the case of full employment). The consolidated tax base can be reduced by all social security payments.

Starting a family and childbearing are encouraged through several tax allowances, tax credits, and exemption from certain income parts. As the tax-free income decreases the consolidated income, it also reduces the payable personal income tax and the social contributions. As an additional effect of the exempt income is that, in the case of its result the consolidated income falls to a lower bracket, then the latter is taxed with a lower rate. The base amount of exempt income is EUR 5550 per taxpayer, and the same amount is granted for family units filing jointly.

These family benefits are the following:

  • Basic reliefs: married couples filing tax returns jointly may claim an allowance of EUR 3,400 (EUR 2150 for heads of households.)
  • Maternity tax credit: tax credit granted in the amount of up to EUR 1200 to working women with children up to 3 years of age.
  • Tax credit for large families (with 3 or more children): additional non-wastable tax credit (up to EUR 1200 for families with 3 or 4 children, and EUR 2400 for families with 5 or more children), which may also be claimed by single-parent households with two children.
  • Tax-exempt income for dependent children (under 25 years): EUR 2400 for the first dependent child; EUR 2700 for the second one; EUR 4000 for the third, and EUR 4500 for every additional child.
  • Childcare allowance: an additional tax allowance of EUR 2800 is granted for each dependent child under 3 years of age.


The standard rule is individual taxation; however, like in many countries (including Spain), families may opt for joint taxation (OECD, 2017, pp. 463-474). Personal income tax is progressive (Table 2).


A surtax was introduced in 2012 in the highest income bracket, but only temporarily, as it will be repealed in 2018. The rate of social security contributions is 11 per cent for employees (with no ceiling).

There is a standard relief amounting to at least EUR 4104 or the social contributions, which reduce the tax liability.

The tax credit is EUR 600 for each dependent child; this sum is increased by EUR 125 for dependent children under 3. As a special relief in the personal income tax regime, 35% of general household expenses up to EUR 250 per taxpayer also reduces the tax liability (this limit is increased to 45% and EUR 335, respectively, for single parents).


There is family taxation in Ireland: the personal income tax is levied on the combined income of both spouses. Either spouse may, however, opt for separate assessment. Family benefits are provided in different forms of tax rates and tax credits, most of them are conditional upon the income level of the household (OECD, 2017, pp. 333-342).

The standard relief (tax credit) is EUR 1650 per person (and this is due regardless of marital status).8

The personal income tax is progressive, but different brackets are applied with different marital statuses (Table 3).


Part of the income is exempt from taxation, this amount is EUR 17,000 in the case of single/widow(ed) taxpayers, and EUR 34,000 in the case of married ones. These sums are increased by EUR 585 for the first and the second child, and by EUR 830 for each subsequent child.

A form of tax called Universal Social Charge is also paid on incomes on a progressive basis (Table 4).

Social security contributions are payable at a rate of 4 percent of an employee’s gross earnings less a threshold, which is the annualised sum of EUR 352 per week.

Among family benefits, a tax credit of EUR 1000 is granted for families where one spouse works at home to care for children, but conditionally, if this carer spouse’s in-come does not exceed EUR 7199. The amount of the former tax credit is decreasing in line with higher incomes: between EUR 7200 and 9200, the tax credit is reduced by one half of the increment.


The personal income tax regime in France has been based on family taxation since as early as 2004 (Spouses and children are always taxed jointly, and even children over 18 can be included if their parents claim them as dependants.) (OECD, 2017 pp. 275-288).

The “family quotient” (quotient familial) system takes a taxpayer’s marital status and family responsibilities into account. It involves dividing net taxable income into a certain number of shares (two shares for a married couple, one share for a single person, one half-share for each dependent child, an additional half-share for the third and each subsequent dependent child, an additional half-share for a single parent, and so on): the total tax due is equal to the amount of tax corresponding to one share, multiplied by the total number of shares.

Personal income tax is progressive, and is calculated on the family members’ shares (Table 5).


In case the household’s income is less than EUR 1553 for single-parent households and less than EUR 2560 for couples, a special rebate is granted in a sum equal to three-quarters of the difference between this ceiling and the amount of tax before the rebate.

Since 2017, households with an income below EUR 18,500 (doubled for couples, plus EUR 3700 for each dependent person), the tax liability is reduced by 20 per cent. In case the household’s income exceeds EUR 18,500, but remains below EUR 20,500 (doubled for couples, plus EUR 3700 for each dependent person), the reduction is proportionally less.

A surtax is applied to the highest income bracket: an extra 3 per cent rate between EUR 250,000 and 500,000 and 4 per cent over EUR 500,000 in the case of a single person, 3 per cent between EUR 500,000 and EUR 1,000,000 and 4 per cent over EUR 1,000,000 in the case of a married couple.

Social security contributions are paid at a standard rate of 10.4 per cent of an employee’s gross earnings, and capped at a monthly sum of EUR 3218 (EUR 38,616 per year).11

The main form of family benefits is tax credit, which amounts to EUR 1512 per half-share in excess of two shares for a couple, or one share for a single person. In the case of the first two half-shares granted for the first child of a single parent, the maximum benefit is EUR 3566.


On 1 January 2011, a new family tax regime was introduced in Hungary. The novelty of this regime has common roots with Western European regimes and applies a tax allowance instead of tax credits (Lentner et al., 2017, p. 42). Family tax allowances encourage childbearing. In contrast to tax credits, tax allowances reduce the consolidated tax base of the taxable breadwinner on a monthly basis. The amount of the benefit depends on the number of dependent children.

The sum of the family tax allowance benefit substantially increased in 2011: families raising one child or two children had HUF 62,500 (approx. EUR 200) monthly benefit per child, while families with three children could retain a monthly sum of HUF 206,250. The benefit considerably reduced families’ tax burden: compared to 2010, the net (after-tax) income of an average family with children increased by 10-20 per cent and the majority of families with multiple children were totally relieved of personal income tax payment in 2011 (Lentner et al., 2017, p. 43).

In 2012, the family tax allowance did not change compared to the previous year, however, the amount of payable tax decreased as the so-called super-grossing taxation had been partially eliminated. (Super-grossing meant that the personal income tax base in excess of HUF 2,424,000 was increased by 27%. As a result, the effective personal income tax rate ranged between 16 and 20.32 per cent.) It is important to note that tax reduction mainly affected families with one or two children, and high-income families with more children. Fairness required reducing the differences between the respective family allowances in the personal income tax regime in 2015. Since 2016, the tax benefit for families with two children has been increasing. As the allowance, which reduces the consolidated tax base, is increasing year by year, the disposable income has grown by HUF 20,000 per child by 2018. This tax allowance is also granted to pregnant mothers from the 91st day of pregnancy until the birth of the child.

In 2015, the family social contribution allowance was added to the family tax allowance. This is granted if the consolidated tax base is eligible only for a part of the family allowance. While the family tax allowance reduces the tax base and the tax liability, the social contribution allowance reduces the payable social contribution. More precisely, 16 per cent of the remaining allowance could decrease the social contributions payable in 2015, and respectively, the 15 per cent from 2016. Eligibility for family allowances does not alter the social security benefits (pension, healthcare, transfers, etc.) nor the amount of benefits of the insured person. The extension of the benefit to individual contributions mainly affects families with three or more children and single parents with two children.

Changes in the family benefits since 1 January 2016 include a decrease in the personal income tax rate from 16 to 15 per cent, and an increase in the childcare allowance for families with two children. Since 1 January 2017 the personal income tax rate has remained 15 per cent; and the rate of social security contributions are 18.5 per cent (calculated as a total of contributions to the pension fund at 10 per cent, to healthcare at 7 per cent, and to the labour market fund at 1.5 per cent).

In 2017 the family tax allowance was HUF 66,670 per month for families raising one child. (This sum reduces the payable personal income tax by HUF 10,000.) The tax allowance is HUF 100,000 per month per child, in the case of two dependent children; and this sum equals to HUF 15,000 decrease in tax payable. Finally, the tax allowance is HUF 220,000 per month per child, in the case of minimum three dependent children; which can equally reduce the tax payable with HUF 33,000 (Lentner et al., 2017, p. 44). Consequently, the personal income tax regime grants proportionally more benefit to families raising two, three or more children. Moreover, as from 2017, family benefits have been extended to the spouses’ close relatives if they live in the same household.

In 2015, a total of 1,097,000 taxpayers, i.e. 23.7 per cent of the individuals submitting personal tax returns could reduce their tax base. Family tax allowances amounted to HUF 1218.6 billion. With a tax rate of 16 per cent, this totalled HUF 195.0 billion tax allowance. Social contribution allowances were granted in a total amount of HUF 35.1 billion within the year, and a further HUF 10.2 billion was reclaimed in the final personal income tax reports (HUF 0.2 billion was unauthorised claim). Thus, the total tax liability of taxpayers decreased by HUF 45.1 billion in 2015, as a result of the family tax and social contribution allowances.

According to the report of the Ministry for the National Economy, the amount of family benefits amounted to a total of HUF 1335 billion between their 2011 adoption and the end of 2017.

Besides the wide range of tax benefits, child-related housing subsidies were introduced in 2015. These measures came into force following the fiscal budget consolidation in Hungary (Lentner, 2017, pp. 21-38).12 The authors proved in a former research (Sági et al., 2017, pp. 171-187) that in addition to tax benefits, housing subsidies may also positively influence childbearing, and for that reason they overviewed the housing market trends after the turn of the millennium. It was empirically inquired if the subsidies alter the desire to have children among young adults. 1332 students in higher education participated in the questionnaire inquiry. According to 73.4 per cent of the respondents, housing subsidies improve willingness to have children; however, only 36.7 per cent answered that if the subsidies remained they would want to have more children. It was concluded that housing subsidies do give a stimulus to childbearing; and this is confirmed by an increase in the number of applications and contracts for housing: between July 2015 and September 2017, 59,042 applications were approved for family and housing subsidies and for interest subsidies in a total of HUF 161,991 million. Up to 30 September 2017, 42,443 contracts were signed in a total amount of HUF 131,064 million.

In 2016, approximately one-third (31 per cent) of the applications included commitments made to having a child in the near future (the requirement is that at least one of the spouses must be younger than 40; in most cases this condition is met by the mother). The remaining two-thirds of the applications referred to children already born, up until the age of 25 of the child (mostly, by couples under the age of 50).

Looking into the titles of subsidies (as the first, second or third child is to be considered) data are available for the year 2016. According to the contracts signed in 2016 for housing subsidies, 69 per cent of them referred to children already born, and 31 per cent to children planned. Regarding the latter figure, it is worth mentioning that the percentage is lower (notably 29 per cent) in the case of newly built flats, and is higher (33 per cent) in the case of used flats. The ratio of commitments to have additional children is the lowest (24 per cent) in applications for HUF 10 million to subsidise new homes; with 62 percent committed to have one child, 26 per cent two children, and 12 per cent three children. Considering the used flats, 58 per cent of the beneficiaries made commitments for one child, 42 per cent for two or more children in their applications for housing subsidies. Altogether about 7 thousand of the contracting families have made a commitment to have about 10 thousand children in the near future; this figure accumulates to an approximate 8 thousand families with 11-12 thousand children for 2016. In sum, one family has committed to have an average 1.4 child within a 6-year period.

An analysis of the regulatory background of housing subsidies shows that the budgeted figures of family subsidies were HUF 277.0 billion and HUF 316.0 billion in 2017 and 2018, respectively. These figures also include marital allowances, withdrawn in the amount of HUF 0.5 billion and 2.2 billion in 2015 and 2016 respectively, which predicts growth for the years 2017 and 2018. Increase in subsidy disbursements correlates with the increased tax allowances for families with two children (HUF 20,000 per month per child in 2015, HUF 25,000 in 2016, HUF 30,000 in 2017, HUF 35,000 in 2018, and HUF 40,000 in 2019, and so on). This means that subsidies for families with two children increased by approximately one-third (31 per cent), amounting to HUF 23 billion, from 2015 to 2016. Further growth in family subsidies might also be expected for 2019.

Summary and conclusions

The countries included in our investigation have different family policies. Since the correlation between the influencing factors and the desire to have children is unknown, there is no obvious ranking among the initiatives of the eligible tax regimes. However, the aim is clear: to improve the age structure of the society via promoting childbearing.

Based on their research the authors believe that improving the desire to have children via tax policy benefits takes time. As the obstacles to childbearing are often associated with young couples’ burdens of having a flat of their own, the Hungarian government has launched a housing subsidy scheme to facilitate the purchase of flats. Besides the financial status, the initiative to increase the number of babies born depends highly on the living standards and the ethical norms of young married couples, both in Hungary and internationally. Permanent substantial changes can only be achieved by improving the economic conditions and by regaining values, mostly through education and focus on the family.


  • 1. The authors express their special thanks to the leading representatives of the Ministry of Human Capacities Youth and Family Affairs Cabinet, and of the Central Statistical Office for the release of statistical data.
  • 2. The maximum annual amount of social contributions is capped at the sum of 48 times the national average monthly wage.
  • 3. 1 EUR = 26 CZK http://www.xe.com XE; Currency Converter: EUR to CZK.
  • 4. Besides, the spouse living with a taxpayer in a common household is also entitled for the additional same amount, provided that the spouse’s own annual income does not exceed CZK 68,000 (OECD, 2017).
  • 5. 1 EUR = 4.28 PLN http://www.xe.com XE; Currency Converter: EUR to PLN.
  • 6. Tax rate on taxable income in excess of the lower limit.
  • 7. See above.
  • 8. There has been an additional tax relief on the interest paid on housing loans, but only until 2017.
  • 9. Tax rate on taxable income in excess of the lower limit.
  • 10. See above.
  • 11. For pension, 6.9% is payable up to the ceiling, and an additional 0.35 on total earnings. For illness, preg-nancy, disability and death, 0.75% is to be paid on total earnings. For unemployment, 2.4% contribution is disbursed, on earnings up to 4 times the ceiling. These rates are supplemented for pension in the case of workers (differently whether they are managers or non-managers).
  • 12. The authors believe that the period of the downturn (crisis) or upturn highly influence the willingness of childbearing. See also Lentner, 2011, pp. 2-9.


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