Hungary offers tax cuts for families, but at what cost?

Hungary's government is offering tax breaks to ease the financial burden on families. But some economists warn the plan could widen the country's budget deficit.

Csenge Kádár-Petrik's mornings start early. With three children to care for, her kitchen is always busy. Between making breakfast and managing household chores, she barely has time for coffee before it gets cold.

"They're tough. Yeah, they can be loud and they can be chaotic as well," she said.

She juggles life as a mother, digital content creator, and customer support worker. Thanks to Hungary's new tax exemption for mothers with three or more children, she says she feels some relief.

"Money helps and money is a good thing. So I feel like it's really good to get some sort of help from the government," Kádár-Petrik said.

The policy, introduced in October, allows mothers of three or more children to pay no personal income tax. By 2026, the plan will extend to mothers of two. The government also announced plans to cap mortgage interest rates to help families afford homes.

Hungary has one of Europe's highest inflation rates at 5.7 percent. The country also faces declining birth rates. The government hopes these policies will encourage families to grow and remain in Hungary.

"I mean, I think it would be more sufficient to lower the taxes themselves," Kádár-Petrik added.

Tax and deficit

Hungary's value-added tax is 27 percent, Europe's highest, and families feel the cost at the checkout. While the tax break eases some financial strain, economists warn it could add to the country's deficit by reducing taxable income. To compensate, the government may need to raise taxes elsewhere.

"The budget deficit is running at 4 to 5 percent of the GDP," said economist Bod Péter Ákos. "It's pretty high, very high, much higher than what is healthy."

For Kádár-Petrik and her husband, the policy, along with existing benefits, could have a significant impact on their household finances.

"There's the tax allowance money that my husband is getting because I'm on maternity leave, and that is around €250 [$270]," she said. "And I'll be getting some money back because of this new law. So these two altogether could almost cover our rent."

For many, government support helps make daily life a little easier.

"It definitely is helpful," said Bence Kádár, her husband. "Most people, I'm sure, are having difficulties at the end of the month. And this allowance is making these last few days a bit more bearable."

For families like theirs, these policies provide some relief in difficult times. What their long-term effects will remain uncertain.