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Transatlantic Blog

Viktor Orban's wrong turn on Hungary's demographic winter

Government intervention in the economy became an issue at the most recent World Congress of Families, which took place in Budapest on May 24-28. While some speakers dealt with social issues, such as abortion and the definition of marriage, a significant portion of the proceedings focused on one of the starkest challenges facing European politicians today: the continent’s impending demographic winter.

Although much of Europe has ignored the problem, the Central European nations of Hungary and Poland have led the charge. Indeed, Hungarian Prime Minister Viktor Orban, who participated in the event, outlined the steps his government is taking to increase the nation's total fertility rate. Specifically, Orban took the occasion to discuss the ways he believes his economic program will aid family formation and support existing families.  However, in trying to boost his own nation's population, he has turned to the government.

Orban’s program – as well as its Polish counterpart, Prime Minister Beata Szydlo’s “Family 500+” – seems dedicated to the notion that the way to increase a low national birthrate is through government intervention in the economy.

The prime minister announced that he has allocated 4.6 percent of the Hungarian GDP to family support programs, including government subsidies for mothers with children under three years old, “free” child care, low-cost children’s camps as part of his Erzsébet Program (“The Elizabeth Program,” named after St. Elizabeth of Hungary), and large family housing subsidies. He told the WCF:

In Hungary we spend 4.6 per cent of GDP on family support. ...

For graduates we shall extend the term of maternity leave by a year, and for university students it is extended until the child reaches the age of two. ... We have decided that families with mortgages can have one million forints written off their debt if they have three children, and one million forints will be written off for each further child, with the state bearing the burden. Finally, we shall embark on infant day care developments on an unprecedented scale.

Under Hungarian policy, a family with three or more children could receive up to 10 million HUF (more than $36,000 U.S.) to build a new home.

However well-intentioned these policies may be, they overlook the fact that the current demographic crisis has been a consequence of social democratic policies that have consolidated the welfare state. They, in turn, hurt economic vibrancy and growth, which has impacted families nationwide.

Prime Minister Orban has understood this on the large scale. He made a drastic reduction of corporate and individual taxes, introducing a 16 percent flat tax and a 10 percent tax on small businesses. Those measures have reduced the debt and sent the economy growing. He has hinted further tax cuts may yet be in store. 

And he announced at the conference that he will be increasing tax breaks for large families. substitute.

The current demographic crisis has been a consequence of social democratic policies that have consolidated the welfare state.

At the same time, he continues to engage in economic interventionism, characterised by the nationalisation of private pension funds, increased national “investment” in the energy and telecommunications sectors, and the introduction of “crisis taxes” to fight the deficit earlier in the decade.

According to the Heritage Foundation's 2017 Index of Economic Freedom, public spending takes up approximately half of Hungarian GDP, while public debt stands at 75.5 percent. Heritage also warns about the fact that labor regulations are inflexible, potentially locking willing workers out of the market.

The following graph shows the correlation between nations' economic freedom (according to the Index of Economic Freedom) and their fertility rate (according to the CIA and indexMundi). It compares data from 2016 for the Czech Republic, Hungary, Estonia, Latvia, European Union, and the United States. 

Eastern European economic freedom vs. birthrate chart.

As we can observe, economic freedom matters. Nations with higher economic freedom ratings than Hungary, such as the Czech Republic and Estonia, also have higher birthrates. On a grand scale, the United States stands out in comparison with the European Union as the best proof of the need to reduce economic interventionism. Although Orban may care about a flourishing civil society, preserving Western Christian values, and increasing his nation's fertility rate, a considerable portion of his economic policies to promote those goals are counterproductive. 

Orban might begin by appealing to the principle of subsidiarity outside of the context of immigration. Subsidiarity teaches that that an entity of higher other must not deprive communities of a lower order of their functions, but help them to coordinate their activity with the activity of the rest of society, following the common good. He has clearly stated that Hungary will resist any migratory policy imposed by Brussels. But in Hungary, the state - a higher order institution - is taking on the responsibilities of a lower order institution - namely, the family. The next best policy, correlated to the principle subsidiarity, would be for private charitable and social organizations to provide for families who lack the means to do so themselves. State intervention should follow, not precede, them.

It is a tragedy that, thus far, public debate in Hungary lacks a more conservative-libertarian argument to counteract the distortions of Orban's family economic policies, which stand against the notion of spontaneous order. Thankfully, this is not the case in Poland. Think-tanks such as the Fundacja Republikańska, the Freedom and Entrepreneurship Foundation, the association KoLiber, and some classical liberal portions of rock singer Pawel Kukiz’s political party (Kukiz'15) provide interconnected alternatives for those Poles who - without relinquishing their moral conservatism - embrace laissez-faire economics as the most successful model for society.

Civil society, not least the Church, has a great role to play in encouraging young people to marry and grow their families. Government, whose policies stimulated the problem, will prove a poor substitute.

(Photo credit: Európa Pont. This photo has been cropped. CC BY 2.0.)


Ángel Manuel García Carmona is a student of computer engineering in Spain. You may follow him on Twitter at @GarciaCarmonaAM.