Key takeaways from the article:
The problem is that the state simultaneously talks about encouraging higher birth rates and bringing refugees back, while fiscal policy moves in the opposite direction: higher taxes and greater pressure on workers and businesses. It resembles trying to put out a fire in one room while setting the foundation of the house on fire.
Lithuania demonstrates a different approach — Zero PIT (zero personal income tax). The idea is simple: the more children a family has, the larger the share of income that is exempt from taxation. In 2025, the tax burden for a single worker in Lithuania was 38.0%, while for a family with two children and one breadwinner it was only 21.3%.
For working parents, this means an additional €600–900 in net monthly income compared to childless colleagues in similar positions. For highly qualified professionals, the benefit may exceed €1,100. In other words, legal employment becomes financially advantageous for parents.
The result: Lithuania’s total fertility rate increased from 1.55 in 2010 to 1.61 in 2019, with a peak of 1.70 in 2015. This was higher than the EU average, which remained around 1.50–1.53 for a long period.
Poland also shifted its focus from direct payments to tax incentives. After the “Polish Deal” reform, parents with four or more children do not pay PIT on annual income up to 85,528 zlotys, or €20,084, for each parent.
The Polish model also allows joint taxation for married couples. This helps families remain within the lower 12% tax bracket instead of 32%, saving up to 25,000 zlotys, or around €5,800 per year.
Another powerful instrument is housing policy. The “Safe Start Loan” program lowers mortgage rates depending on the number of children: 1.5% for childless couples, 1% for families with one child, 0.5% for families with two children, and 0% for families with three or more children.
The Babciowe program, or “grandma allowance,” legalizes childcare. If parents return to official employment, the state pays 1,500 zlotys — approximately €350 per month — which can officially be transferred to a grandmother, grandfather, or another close relative providing childcare.
This is especially relevant for Ukraine, where the shadow economy accounts for around 40% of GDP, and undeclared “envelope wages” cause the largest budget losses — between UAH 200–265 billion annually. Tax incentives for families could simultaneously support higher birth rates and bring part of these incomes out of the shadows.
The main principle is that money should remain with families automatically, rather than being returned through complicated welfare programs. PIT benefits, zero taxation for large families, and an expanded tax-free income threshold create a direct link between legal employment, taxes, and children’s well-being.
There is also an economic argument. Families with two or more children consume more goods and services: food, clothing, housing, and services. Part of the money the state leaves with families through tax benefits returns to the budget through VAT and other consumption taxes.
Tax incentives should go hand in hand with pension reform. The solidarity-based pension system places pressure on younger generations, who are paying contributions now without guarantees of future pensions. Ukraine needs a transition toward an individual накопичувальна system of pension savings.
If Ukraine wants to overcome the demographic winter, it must change its logic: not punish working people with taxes, but allow families with children to keep more of what they earn.
❗️The article was prepared by the CASE Ukraine Center for Social and Economic Research with the support of the Askold and Dir Foundation, administered by ISAR Ednannia within the project “Strong Civil Society of Ukraine — a Driver of Reforms and Democracy,” funded by Norway and Sweden. The content of the report is the sole responsibility of CASE Ukraine and does not necessarily reflect the views of the governments of Norway and Sweden or ISAR Ednannia.