Three Decades of Family Policy Change in Hungary, Lithuania and Romania

What we know about how much and how family policy instruments have been changing in post-socialist national contexts is incomplete. This paper takes a step towards tackling this issue by looking at family allowances, family tax breaks and paid parental leave provisions for the 1990-2018 period in three rather different post-socialist national contexts: Hungary, Lithuania and Romania. The paper takes to heart institutionalist advice: one needs to go back and look at individual institutions rather than at entire assemblages (Capoccia and Kelemen, 2007; Pierson, 2000); and one needs to consider not only policy changes, but also policy stasis in order to understand the changing nature of entitlements and social protection (Hacker, 2004; Mahoney and Thelen, 2010). The article draws on exhaustive social legislation timelines for each policy instrument in each country, aiming for a rigorous, analytically coherent and empirically well-grounded discussion. This fine-grained analysis serves a theory-building process about the modes and ethos—or spirit—of family policy adaptation over time, i.e. how adaptation has been accomplished and what its impact on different families’ social rights has been over the last three decades.

The Literature

Although telling a story based on pieced-together empirics, this analysis is sensitive to the possibility of a particular ethos of welfare state transformation, formulated by Ferge (2001a, 109-114) as follows:

"it is restructuring public expenditures in the name of a new conception of social justice. It offers extra funds and privileged treatment to the “middle classes” and penalises the unemployed and the poor, both by worse social benefits and by harsh policing (called crime prevention). […] The reordering of claims in favour of the strong and at the expense of the weak occurred on a scale and with a rapidity probably never seen before."

This view was shared by other scholars for family policy in Hungary and Romania in particular (Inglot et al., 2012; Kovács, 2018; Kovács et al., 2017; Lakner and Tausz, 2016; Popescu et al., 2016; Szalai, 2012; Szikra, 2018, 10; Thomadakis, 2000). There is evidence, then, of two types of dualism emerging in post-socialist Hungary and Romania. One has to do with different segments of the population making claims on different components of the welfare state: social insurance schemes are restricted to labour market insiders, whereas the less fortunate (and the poorest) are relegated to stigmatising, disciplining social assistance. A second, more recently described and more scantly documented dualism takes shape through employment-conditional social programmes,1 whose adaptations have led to the creation of income-differentiated incentive structures, especially for mothers’ work-care decisions, contributing to greater income-based inequalities.

In this contribution, I aim to answer to the following questions: is this underlying anti-“weak” and pro-“strong” bias in the remaking of post-socialist welfare architectures a Hungarian and Romanian phenomenon or more common across the post-socialist space? Second, to what extent and how persistently does it apply to family policy adaptation specifically? Finally, how are distinct social rights regimes engineered, i.e. what is the means of policy adaptation that leads to such outcomes?

The Analytical Approach and the Data

From Titmuss ([1968] 2006, 130-131) on, comparative welfare state analysis has made frequent use of analysing differences and similarities in actual entitlements by social programme (selected in terms of functional equivalents), with a focus especially on eligibility criteria and net replacement rates,2 to say something about differences and variations in welfare state architectures (most influentially Esping-Andersen, 1990). However, just as the quick succession of static images can produce animation, so can an analytically consistent review of programme design details over time reveal patterns of changes and continuities, enabling one to trace the particulars of welfare state adaptation in a grounded fashion.

The analysis requires, then, a dataset with information at least on eligibility criteria, receipt conditionalities and (net) replacement rates or, for nominal universal or means-tested transfers, benefit levels over time. For tax breaks, it requires information on details similar to those specified for cash transfers: eligibility criteria and conditionalities on receipt; nominal benefit levels (in national currency) and formulas (especially for tax breaks) as well as caps, minimum thresholds and tax burdens on benefits (if they exist); benefit duration (where relevant); and funding sources. For Lithuania, the dataset has been built from scratch, whereas for Hungary and to a lesser extent Romania, secondary literature has been used as a starting point to identify relevant legislation.

So far, analyses of post-socialist family policy change have used a historical institutionalist framework, treating policy stasis as policy continuity. However, this is a misplaced view. As scholars of gradual institutional adaptation point out (Hacker, 2004; Mahoney and Thelen, 2010), policy stasis is far from inconsequential for social rights: whether in the form of policy drift or layering, non-change can, in fact, be hugely influential.

The Ethos of Family Policy Adaptation: Exclusion, Dualisms and Increasing High-Income Bias

Family Allowances
Family allowances have existed in all three countries analysed here prior to and throughout the 1990-2018 period. Hungary has been and remains inclusive and cash generous, Romania has been inclusive but ungenerous, and Lithuania has traditionally had a targeted, ungenerous family allowance scheme, only very recently introducing a universal instrument. Beyond this, however, changes in eligibility and benefit levels reveal more commonalities than differences, variations in programme design notwithstanding.

One similarity has been the expansion of eligibility in terms of age, coupled with school attendance–related conditionalities, Hungary and Romania standing out in particular as countries where child allowance has become more tightly linked to regular school attendance. In societies where early school drop-out is strongly related to ethnicity, severe poverty and marginalisation, often heavily concentrated in rural areas and among Roma children, the conditioning of this family transfer means that the neediest will get excluded and those enjoying the benefit longest are those to whom a meagre cash transfer makes only a symbolic difference.

An equally subtle way to disenfranchise the neediest has been the erosion of benefit levels over time through non-indexation, i.e. policy drift. The evolution of family allowance benefit levels reveals successive periods of retrenchment through drift in all three countries between 1990 and 2018.

Paid Parental Leave Schemes
In all three nations, cash benefits linked to paid parental leave schemes have been tax-financed but employment-conditional for a long time now (since 1991 in Lithuania, 1992 in Hungary and 2006 in Romania). It is these programmes that most starkly expose the injustice against the neediest through exclusion from coverage.

Apart from Romania, where parental leave eligibility criteria remained persistently restrictive between 1990 and 2016, Hungarian and Lithuanian eligibility criteria have tightened over the last three decades, converging on twelve months of insured status in the twenty-four months preceding a child’s birth. At the same time, all of these nations have expanded eligibility in ways that narrowly favour the highly skilled. Furthermore, paid parental leave provisions have become increasingly more permissive towards combining what remains defined as an income-replacement instrument with earned income during the leave period in all three countries. This, of course, favours 1) those with high incomes, who can purchase child care, and 2) those who have informal care options. Moreover, in all three countries parents have the option of returning to paid work full time while cashing in either the paid leave benefit (Hungary and Lithuania) or an increasingly more generous “stimulant” (Romania).

The bifurcated, income-differentiated benefit packages that paid parental leave schemes have become, most notably in Hungary and Romania, are also evidenced by benefit levels. In Hungary, the universal cash-for-care benefit declined from 63% of gross minimum wage in 1992 to 18.6% in 2018 after the elimination of automatic indexation. In contrast, the employment-conditional earnings-related child care allowance (GYED), with a relatively ungenerous cap of 140% of gross minimum wage, has ranged from a net average of 104.5% of gross minimum wage in 1992 to a maximum of 119% in 2018. In Lithuania the benefit became 60% of gross earnings in 1995, increasing piecemeal to 100% – and thus exceeding parents’ net earnings – starting in 2008. The choice between a one-year leave (and a benefit of 100% of gross earnings) and a two-year leave (70% and 40% of gross earnings during the first and second year, respectively) in 2011, marked the beginning of an explicitly income-differentiated parental leave instrument. In Romania, the benefit has been tied to earnings with the exception of the 2006-2007 period, increasing from 65% of net earnings in 1990 to 85% of gross earnings in 2008 and 2009, and now 85% of net earnings. Although a cap has been maintained on the benefit, with the exception of a brief period in 2016-2017, caps have been comparatively generous: as high as 741% of the gross minimum wage in 2009-2010 and 421% of gross minimum wage in 2018.

Paid parental leave programmes have most consistently shown an evolution over time evidently favouring those with strong labour market attachment at the expense of less well-to-do parents. Hungary’s cash-for-care universal transfer has been eroding for twelve years now; Lithuania and Romania have no equivalent. And when it comes to labour market insiders, cash-generous transfers accrue to those on short leaves—the Finnish model, with income—, with education-differentiated short- and long-term implications for mothers’ earnings, employment transitions and career development.

Tax Breaks for Families with Children
Tax breaks, including for dependent children, have been long treated as indirect transfers by virtue of their effect on individuals’ and families’ purchasing power (Titmuss, [1955] 1987, 48): as foregone income tax, they increase families’ disposable income. Because they are restricted to earners, typically employees who work for wages, they are inherently selective: they are inaccessible to the neediest. In addition, when family tax breaks work in tandem with others, as is often the case, breaks for dependents can be even more selective, having little to no saving impact for those at the bottom of the earnings distribution if generic tax breaks already reduce low wage earners’ tax burdens to (close to) zero. This has been the case for longer or shorter periods in Hungary, Lithuania and Romania over the last three decades.

The story of family tax breaks in Hungary is a story of indirect transfers targeting those in work and, after 2001, especially those with above-average incomes raising three or more children. In Hungary, family tax breaks have been a key means to channel cash towards earning families and in particular high-income earners with three or more children, rewarding the winners of post-socialist capitalism through indirect transfers. In Lithuania, family tax breaks have historically been reserved for those raising three or more children and single parents. With the new 2002 tax code, however, families have been treated much more similarly, with total tax savings per family converging regardless of the number of children. In a flat-rate personal income tax environment, Lithuanian family tax savings tended to be flat and ungenerous until their phasing out in 2017, constituting an ungenerous, selective indirect transfer with practically no redistributive potential. Romania has been much like Lithuania: for the most part, meagre or absent tax breaks, with practically no redistributive potential.

Conclusion

This paper shows that when taking an instrument-by-instrument look, universal family benefits were typically eroded in the three nations studied, most often as a result of policy drift thanks to the elimination of automatic indexation mechanisms. In addition, eligibility criteria and conditionalities on receipt were changed in ways that often adversely affect the neediest, but positively affect better-off parents whose children successfully continue their education past secondary school. Employment-related benefits—paid parental leave in particular—were, in contrast, regularly indexed. And although funding switched from social security funds to general taxation everywhere, employment conditionalities were tightened and earnings-related formulas maintained, sometimes without caps. Through layering, coverage became calibrated such that entitlements now reach especially those who are better educated and those with strong labour market attachment, particularly in Hungary and Romania.

Consequently, the discrepancy between what secure labour market insider families on the one hand and persistent labour market outsider families on the other can claim has been increasing. And while this discrepancy was relatively small during the 1990s and mainly the result of policy drift, sometimes counterbalanced by active decisions to temper or undo it, by the early 2000s governments were actively pursuing family policy instruments meant to reward persistent labour market insider families and indirectly penalise the neediest, cultivating differentiated welfare architectures. Using the animation analogy again, Hungarian, Lithuanian and Romanian family policy instruments may have been very different-looking characters over the last three decades, some leaner, others portlier, but they all seem to have been doing a similar dance, with character-specific tweaks and tempos. The dance is growing institutional dualism through tax-financed social protection for families, relegating those outside the formal labour market to the increasingly shrinking domain of universal benefits and stigmatising social assistance, while retaining public revenue–sponsored employment-conditional transfers for those with strong formal labour market attachment.

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• 1. The literature typically distinguishes between universal, tax-financed transfers and employment-/contributory insurance-financed transfers. As Kuitto (2016) also shows, this difference does not necessarily apply in post-socialist welfare states, with some employment-related entitlements funded from general taxation. Thus, employment-conditional is a more fitting term for such programs, e.g. paid parental leave schemes.
• 2. The net replacement rate of a cash transfer, e.g. pension, unemployment benefit, sick pay etc., shows what share of one's usually earned income is being covered by the transfer when one is not (or no longer) working. It is expressed as a percentage, calculated as the value of the benefit and one's net earned income.