Six measures Hungarian PM Orbán's latest remarks foreshadow

Demographics in focus

There is ample work to be done. If you’re inquiring about the priorities of governing, I can tell you that, according to my intentions, the next governing [term] will be focused on demographics

, Orbán told foreign journalist on Tuesday after winning a two-thirds legislative majority on Sunday which enables his ruling coalition to change the constitution without outside votes.

This may seem like a concise answer, but it speaks volumes that the PM named the improvement of the country’s demographics as one of the priority tasks at his very first press conference after winning his third consecutive term in power.

In an interview with local pro-government weekly Figyelő, he said last week that as of January 2019 the cabinet would launch a programme aimed at improving the country’s competitiveness, leaning on proposals tabled by the central bank (MNB) earlier.

The government had stressed earlier that it was aiming for turning around unfavourable demographic processes. One year ago, Orbán made the government’s related plans public, announcing specific measures (forgoing student loans under specific conditions, the extension of the period for the “graduate" GYED (childcare benefit), writing off HUF 1 million for mortgage holding families having a third, fourth and so forth children, setting up a family policy research institute, etc.)

The fertility rate needs to be raised from 1.5 currently to 2.1 by 2030. This direction needs to be maintained throughout several governing cycles. The chart below shows how different developed economies have fared in this respect. MNB economists said in their Competitiveness Report last year that boosting the fertility rate is “a precondition for reversing the unfavourable demographic trend."

In order to prevent a further decrease in population in the medium term, fertility should rise to at least 2.1 (it also fails to reach 1.6 in the EU), they argued. In Hungary, contrary to the trends in the countries of the EU and the region, following its historical low (1.23) in 2011, the fertility rate rose continuously, reaching 1.49 by 2016, but it is still below the value of 2.1, which is the minimum requirement for social reproduction.

This is why the focus is on demographics

The central bank’s competitiveness book we keep quoting details on six pages the potential measures that could improve Hungary’s demographic situation. In a wider sense, the bank’s economists devoted 20 pages to competitiveness measures aimed at improving human capacities.

Given that the primary cause of the aging of the population is a low birth rate, increasing the number of live births constitutes a social policy challenge of key importance

, the economists argued. They also pointed out that the “Ratkó grandchildren" would be out of the child-bearing age in a few years, as a consequence of which the number of women of child-bearing age will drop significantly that could create an impediment to boosting the birth ratio later on.

In order to present this problem, the Central Statistical Office (KSH) had created a spectacular chart. As 97% of live births are linked to women under 40 years of age, the stats office focused on the 15-39 age group. So, what does the chart tell us? The Ratkó grandchildren entered child-bearing age in the early 1970s, raising the number of the 15-19 age group. Five years later, a similar boost was given to the 20-24 and ten years later to the 25-29 age groups. The large generations born in the mid-1970s caused similar fluctuations among women under the age of 30 from the start of the 1990s. After that, however, the growth in numbers characterised by fluctuations stopped and was replaced by a persistent and significant decrease in each sub-30 age group.

As a result of the above, the number of women currently in their 20s is down by over 100,000 or 15% compared to the number of woman ten years older (30-39). This implies that over the next few years and decade, the number of women of child-bearing age will fall further in Hungary, and regarding its age composition this group will also be “aging", just like the general population.

The menu

The publication proposes the following measures as a resolution to demography problems (not in that order):

• Further increase to the tax allowance of families with two children. This is basically a done deal. PM Orbán announced this in 2017 while revealing his cabinet’s demographic programme, but no official decision has been made since then. It had been decided (and enacted) in 2015 that the family tax allowance will be raised from HUF 10,000 per child per month by HUF 2,500 annually every year between 2016 and 2019. As of next year, the allowance will reach HUF 20,000 per child per month. If we had to guess, we’d say the expansion of the family tax allowance could be one of the first demographics-related steps of the new Orbán cabinet. The central bank argues that the higher the allowance the greater the willingness to have a second child.
• Raising the cap on GYED (childcare benefit). GYED is currently maximised at 70% of previous earnings, but it has a nominal cap, which is 70% of the double of the prevailing minimum wage. Those who earn more than that could be facing a significant drop in their income, and MNB staff argue that losing that much income while being home with a child could discourage families from having more children. They propose a raise in both cases from the current 70%.
• Raising the one-off lump-sum birth grant.
• Increasing the capacity of pre-primary and nursery schools. MNB staff urge this measure, arguing that these institutions are a key to help mothers return to the labour market. Central bank analysts noted in the Competitiveness Report last year that some HUF 100 billion will be spent on the development and establishment of pre-primary schools and kindergartens within the framework of various tenders. They also noted that as of 1 January 2017 the scope of settlements where it is mandatory to maintain pre-primary schools has expanded, and new, ‘flexible’ forms of nursey provision have also become permitted.
• Creation of family-friendly workplaces. In order to achieve that both parents could return to the labour market after they had a child, part-time employment should be encouraged and supported. Via the development of distance-learning and targeted schemes, further education and vocational training of new parents could be assisted.
• Development of daycare services.The central bank’s report argues that it helps parents with small child/children find a job if daycare services are improved. Possible tools include family child-minding facilities or the creation of a daycare system (in the public sector), as well as the implementation of benefits to incentivise the establishment of such system in the business sector. Grants for the latter were available in tenders, by the way.

Strictly speaking, the MNB publication lists the above six measures as proposals to tackle the problem of Hungary’s worsening demographic situation, but there are other steps that could improve the competitiveness of human resources.

One of these is the connection of child-bearing and pensions. MNB staff argued that “the pension system should be just and sustainable, a possible means of which is the acknowledgement of childbearing in the pension system." The current system is inconsistent, as those parents with more children can expect the lowest pensions compared to peers in a similar profession that ensured the most and most highly qualified labour and human capital for the society. The MNB analysts argue that the country would need a pension system that acknowledges the individual efforts made to raise children and the number of children raised, adding that another consideration could be the level of education of the children raised. They have a clear sense of how this argument would divide public opinion therefore they urge implementation with utmost care. This proposal is not only their own, though. In 2014, the Population Roundtable had already tabled this notion, but the government tried to distance itself from the plan immediately.

Strengthening preventive healthcare could also be part of the efforts to reach demographic targets. Some measures have already been implemented here, e.g. the improvement of public catering, the creation of the National Public Health Strategy 2017-2026, stricter rules for the screening of minors, but improvements could be achieved also by strengthening the system of general practitioners, the introduction of mandatory screenings, promoting sports activities at workplaces, the revision of the VAT content of sports equipment and the extension of the group of products subject to the public health product tax.

In view of the above, we can state that the cabinet has a menu at its disposal that it could use to move ahead.

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• demographic,
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