Hungary’s Demographic Dilemma

October 22, 2013

family

 Whoever wins next year’s election must address falling birthrates while continuing to provide for 3 million pensioners.

In the wake of the 2008 financial crises Hungarian birth rates fell to an all time low.  Last year more children were born than the previous year, inspiring Prime Minister Viktor Orban to remark in February of this year that “babies have been seized with the desire to be born”.  He attributed this to the fact that infants had “noticed changes to the Hungarian economy” their parents had not.

This was probably wishful thinking on the prime minister’s part.  According to preliminary figures released yesterday 3.5 per cent fewer Hungarians were born during the first eight months of this year than last year.  Discounting those who moved abroad, Hungary’s population decreased by 26,545 souls between January 1st and September 1st.   From a population point of view this was as if a city the size of Szentendre or Jaszbereny was simply wiped off the map.

Fewer children today means fewer consumers of Hungarian goods and services tomorrow.  It also means fewer workers to support Hungary’s growing numbers of pensioners who presently exceed 3 million.  If current trends are allowed to continue then in twenty or thirty years time there will be more pensioners than working age people.

Hungary’s demographic dilemma did not begin under the current government.  The number of live births per women has fallen steadily since the early 1970s.  Better diets and modern medicine mean people are living longer (there were 4.1 per cent fewer deaths the first eight months of this year than the previous year).  Falling death rates mean more people are surviving into their sixties, seventies, and eighties, putting enormous strain on public finances.

Past incentives in the form of tax breaks or government hand-outs have been too small to induce enough working-age men and women to start families.   At just over one live birth per woman the Hungarian birth rate is roughly half what it needs to be in order to prevent the country’s population from shrinking further.

Adding to the country’s demographic problems is the fact that an estimated 350,000 working-age people left the country over the past five years in search of jobs or a change of pace.  Many of them were technical high school or college graduates in their 20s and 30s.  The current exodus of working age people deprives Hungary of the knowledge and skills it needs to rebuild its economy even as it deprives the government of payroll contributions and income taxes.  Most importantly, it deprives the country of potential parents necessary to raise future generations of Hungarians.

People under the age of 18 cannot vote.  Pensioners can and do vote.  Furthermore, they tend to be one-issue voters.   Either pensions have kept up with inflation (in which case they vote for the government) or they haven’t (in which case they either vote for the opposition or stay at home).  This simple fact makes it politically impossible for governments to enact the kinds of fiscal and social reforms necessary to reverse this downward trend if that involves raising retirement ages or scaling back pensions.

On the other hand people (and their unborn babies) vote with their feet.  The sooner the current government abandons its unorthodox economic policies, the sooner the Hungarian economy will return to the path of economic growth.   Lower unemployment rates and higher household incomes should eventually cause birth rates to rise.  But persuading women to bear twice as many children is going to require significant financial incentives beyond the free childcare, free health care, and tax breaks to which they are presently entitled.

Origo.hu reports this morning that 36,100 abortions were performed last year.  Although this represents an overall decrease of 6.1 per cent from the previous year, the number of women in the prime child bearing age of 25 -29 having an abortion last year actually increased 6 per cent.   This trend must be reversed if a demographic disaster is to be averted.