Birth rates have been in decline in Central Europe since the 1970s, which inevitably leads to an ageing population and resulting changes in society’s social structure; most prominently the legal pension fund. The decision for or against children has long since become more than a personal matter and now concerns all of society. Lawmakers are constantly trying to alleviate the financial cost that naturally comes from raising children in a bid to push birth rates.

One possibility discussed lately is a state subsidy toward childcare cost. The goal of this subsidy is to fully or in part reimburse young parents, especially young mother, who still do the lion’s share of child care in the families, for cost incurred by external childcare during normal working hours. This particular subsidy would be paid by the employer, and be free of taxes and social security. That way, the subsidy will full benefit the recipient parent. The employer would be saving money as well, because in contrast to a normal pay raise, there would be no employer’s contribution (currently about 20%) to social security.

Law makers picked this model for more than just social reasons:

• The subside would not be paid with tax-payers‘ money, social security funds, or other public accounts, but would come from employers.
• Outside childcare enables the parent, still usually the mother, to return to work soon after the child’s birth. This is beneficial to society as a whole, because nowadays most young women are well educated and highly motivated, and badly needed in the labour market to keep the economy on the current high level.
• If both parents work, they will pay a lot more social security fees and taxes than families following the traditional roles with the father as the breadwinner and the mother keeping the house and side lining at best. This will more than make up for the treasury’s loss in taxes that the subsidy will incur.
• Given their on average high level of education, few women nowadays are content with being a mother and wife alone. An interesting job and career opportunities have become important for their personal happiness as well. This will also help to prevent strive within society. Another positive effect is that on average, marriages where both partners are happy with their jobs tend to be happier and last longer. That in turn then is positive for the children.

The following employee benefits for children who do not yet attend school are free of tax and social contributions:

• Refunds of kindergarten fees or the cost of a child minder or
• Subsidies paid toward those costs
• Free or subsidized child care in company-run kindergartens
• Fees and contributions paid by employers to child care facilities, which buy their employees a right to membership without having to go through the typical application process or waiting lists.

Source: §3 Nr. 33 EStG (Einkommenssteuergesetz)

Over the coming weeks, we will add more posts exploring different methods of support for working parents. There are a great many possibilities, but not all of them are well known, and not everyone will fit the individual circumstances of each family. Hence, it is advisable to get a good overview of what’s out there before making a decision. Hopefully, we will be able to assist in that by providing information and inspiration.