Hungary Puts a Tiny Bit of Money Where Its Mouth Is

True Natalist Subsidies Have Never Been Tried

When you are in deep
is no time to be cheap.
—-
The only kind of crisis you can skinflint your way out of is a budgetary crisis, and not always even that.
—-
The emerging consensus among people who care about natalism policy is that Money Doesn't Work.

This emerging consensus is wrong on two counts.

Refusing to Spend Money Undercuts Other Ways of Motivating

  Many available alternatives to spending money are undercut by not spending money.

Status -- Some have offered pretty good arguments that the only solution is to raise the status of fatherhood and motherhood. Quite likely so. Only... spending only dribs and drabs on having more children suggests its low status. Unfortunately, so does spending nothing.

The Patriarch of Georgia seems to have had a real effect, by conferring status without spending money, but that’s because he didn’t have any appreciable money to spend. If he did have tons of money he spent on all sorts of things, but refused to spend on kids, the status raise (personally baptizing children) is unlikely to have worked.

Duty, sacrifice, honor -- Some have suggested that its a crisis of selfishness and we need to return to an ethic of public-spirited sacrifice. Probably true, though how to go about it is less clear. What is clear is that calls for sacrifice ring hollow when the society begrudges sharing any of the sacrifices. "Let's you and him sacrifice."

Poor Design and Parsimony

The other major reason the consensus is wrong is that no one has tried spending real money as child incentives. True natalist subsidies have no kidding never been tried.

We have already analyzed how paltry the proposals from Singapore, South Korea, and the United States are.

Now let's look at Hungary's newest attention-grabbing proposal that mothers can go tax free.

The Plan

The plan is that mothers with one child will be exempt from paying income tax until they turn 30 years old. At the same time, mothers with two or more children will be completely exempt from paying income tax for life. The exemptions will roll out gradually.

This measure expands an existing policy that already grants lifelong income tax exemptions to mothers with four or more children.

Poor Design

The new policy removes any benefit for having a third or fourth child.
Further, main-income households tend to have more children. Dual-income households have fewer. In order to get the benefits of this incentive, mothers need to pursue full time work, the more vigorously the better. This policy is anti main-income household and pushes fual income households. This policy is arguably anti-natalist.

A much better design would be to apply the tax benefits to fathers. But that would be more expensive, probably a lot more expensive.
Which brings us to

Parsimony

By almost every measure, this plan is feeble and parsimonious. Here are the specifics.

1. 1. In its first few years, the measure is expected to apply to around 150-200,000 taxpayers. Hungary's population is 9.6 million. Around 5 million Hungarians are economically active. This plan, in other words, applies to 2% of Hungary's population and 4% of Hungary's workers. That is no basis for a demographic revolution.
   
   2. In its first few years, the plan is expected to reduce revenue by 160 billion HUF. (The HUF is about 3 cents). Hungary's annual GDP is 75 trillion HUF. Tax revenue is 38.7 trillion HUF and the budget is 42.9 trillion HUF. This plan, in other words, is offering an incentive that is 0.2% of GDP, 0.4% of tax revenue, and 0.37% of the budget.
   
   Hungary currently spends 2.1% of GDP on the military. This plan, in other words, spends about a tenth of what the nation thinks is appropriate for routine, non-crisis expenditures on its survival. In an actual war for survival, nations will spend 40-50% of their GDP or more. This plan is a 1/200th of that.
   
   3. Average household income is surprisingly hard to find, but it appears to be around 400,000 HUF. There are about 4.5 million households in Hungary. So this amounts to a subsidy per household of about 9% of household income (obviously some households will get more, this is spread across all households).
   

The birth collapse is a world-threatening emergency. But no one really feels, deep in their bones, that it’s an emergency. Our instincts aren't adapted to the cold equations.

When we say “subsidies don’t work,” what we mean is, we aren’t willing to spend what it takes.