Pro-family policy of the European Union states
11/02/16
According to PwC report “Tax allowances and family benefits in the European Union states” the average amount of direct EU state aid in respect of allowances for children and family benefits is currently EUR 2,246 per year, but in reality as many as 18 EU states (over 60%) do not achieve this amount
For the purposes of “Tax allowances and family benefits in the EU” report, PwC advisory company has performed a simulation in order to assess the aid which can be expected in 2016 by an average family consisting of two working parents earning an average salary with two healthy children aged 4 and 8. The analysis shows that the average amount of direct EU state aid in respect of allowances for children and family benefits is currently ca. EUR 2,246 per year, but in reality as many as 18 states (over 60%) do not achieve this amount. The first three places in this ranking are occupied by Luxembourg, France and Germany and the last three by Bulgaria, Greece and Lithuania.
The situation looks different if we juxtapose the level of family support with the average salary in respective countries. From such a perspective France, Hungary and Austria are at the top of the list while Bulgaria, Romania and the Netherlands are at the bottom. The difference between the countries at both ends of the list is 13.5 point.
Pro family policy vs. fertility rate
As PwC experts note in the report, in most EU states the relationship between family support tax incentives and reliefs and high fertility rate is noticeable. The perfect example of this is France, where the amount of family benefits is among the highest in the EU states. France also ranks first in terms of fertility rate and it is the only country in the European Union which has a fertility rate at a level that ensures a replacement of generations.
Germany, however, is an opposite case, characterized by high investment in pro family policy and very low rate of natural increase (8th position form the end).
“Pro family policy is a series of various, long-term measures. Only the systemic approach guarantees positive effects represented by increasing fertility rates. Families which decide to have children equally appreciate the financial benefits or tax allowances and safety at the workplace, appropriate residential infrastructure or access to day nurseries and kindergartens. Pursuit of a well-conceived pro family policy should be modeled upon the best solutions functioning in other European Union states, i.e. introduction of higher pension entitlements for raising more children or making social pacts providing families with stability and safety, like it was carried out in Ireland”.
Family support tools
The most commonly used family support tools include allowances and cash benefits (e.g. newborn allowance), as well as tax allowances and expense deductions.
Some countries supporting families with many children, such as France or Portugal, also employ the so called family quotient. In this solution, the total family taxable income is the figure arrived at by taking the quotient into account, i.e. the division of the actual income by a relevant number of “fiscal units”. This reduces the progression effect and the bigger the family, the lower the tax to pay.
In France there is also a correlation between the number of children and the amount of parents’ pension. Raising three children means increasing the pension by 10% and each subsequent birth increases the benefit by additional 5% (however, the total increase must not exceed 30% of the initial amount).
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