Budget 2026: Government Goes All In on Parents. Will Malta get a full house?

The context for this topic was clear ahead of the Malta Budget 2026. Malta faces an abysmally low birth rate. In 2023, its total fertility rate was just 1.06 births per woman, the lowest in the EU. By comparison, the EU average stood at 1.38. Analysts warn that without a demographic turnaround, the native population could shrink to around 350,000 by 2050.

At the same time, surveys show that most Maltese couples would like two children, but often settle for one. This gap, according to their responses, is driven less by changing cultural values and more by economic limits. Finance Minister Clyde Caruana has repeatedly framed Malta’s very low fertility as one of the greatest challenge of our time. This theme was also one which he flagged at the pre-budget launch with social partners.

Malta Budget to give largest Tax Cuts for Parents

Much like a poker player who pushes all their chips to the centre of the table when the stakes are highest, the government’s response in Budget 2026 was to go “all in.” But instead of playing for a flush or a straight, it’s playing for something far rarer in Malta today ... a full house.

The 2026 Maltese Budget marks arguably the most aggressive family‑focused package in the island’s history. Finance Minister Clyde Caruana’s measures aim to make raising children easier, at least financially.

The headline measure was the Income-tax relief for parents. The new tax “computations” will massively widen tax-free income for households with children. For example, by 2028 each parent in a two‑child family will not pay income tax on the first €30,000 earned. In effect, a couple each on €30k with two kids would pay no income-tax. Parents with one child also get raised thresholds to a lesser extent. The reform is phased over three years, costing an estimated €160 million and benefitting tens of thousands of families. The government estimates that a two‑child dual‑income household could save around €10,000 per year by 2028. According to government projections, as much as €250,000 over 25 years if the same structure remains in place.

The budget also raises other existing child supports such as the “children’s allowance” as well as the one-time “birth and adoption bonus”. Adoption-related support was also boosted and parental leave coverage was extended. These measures represent a major policy shift. Overnight, Malta is moving from modest family top‑ups to an all‑out pro-natalism agenda.

This budget builds on, but greatly amplifies, previous family policies in Malta. Some of the most notable recent policies were the introduction of free childcare in 2014, and the launch of childbirth grants in 2020. The budgets in between, mostly implemented gradual increases on existing measures. In this budget, Malta’s family policies have escalated aggressively.

What are pro-natalist policies?

Pronatalist policies are government measures explicitly designed to encourage people to have more children. They can range from direct cash support to services and work‑family benefits. In recent decades many developed countries have adopted such schemes in response to aging populations. The UN notes that advanced economies now often spend 1–4% of GDP on family support.

Pronatalism has become politically popular as societies confront declining birth rates and ageing populations. Malta’s situation, having the EU’s lowest fertility rate and a high level of immigration, makes the pressure especially acute.

Europe and beyond: other countries’ baby-boosts

Malta’s strategy echoes pro-natalist moves elsewhere, though its scale is striking even by international standards.

Estonia pays some of the most generous subsidies to large families. For example, any family with 3+ children receives roughly €300 per month from the government. It is also crafting a long-term population strategy amid continued low fertility. France combines substantial childcare and fiscal supports. It has long provided generous child allowances and tax credits for bigger families, and offers a €1,000 birth grant for newborns. France spends more of its budget on families than any other OECD country. The payoff is that French fertility remains the highest in the EU – although still below replacement.

Since 2016 Poland has had the famous “Family 500+” child benefits of approximately €100/month per child from the second onward, which initially lifted births. In 2025, Poland went further with a new law that eliminates income tax for parents with two or more children if they earn below €33,000. Given the country’s relatively low wages, this means that many average families effectively pay zero income tax under that threshold.

Hungary’s government offers an extremely broad “pro-family” package. Tax credits for parents scale steeply by number of children: for instance, by 2024 each child reduces taxable income by up to €566 /month for three children. Mothers with four or more children are completely exempt from income tax. Large-family loans for home-buying, free cars for mothers of 4+, and other perks accompany these tax breaks. Hungary’s fertility rate has inched upward at 1.56 since these policies were introduced, but also remains far below the needed 2.1.

In Asia, Japan and South Korea both have famously low fertility rates. They have responded with cash grants and  childcare services. Japan increased its one-time birth bonus to around €3,000 in 2023, and provides monthly child allowances plus extensive preschool programs. Korea likewise has various “baby bonuses” depending on the city, as well as housing subsidies for young families. Both countries recently saw slight upticks in their crisis-level fertility rates. Baltic and Scandinavian states offer free pre-school and parental leave that supports working mothers. In general, countries that combine affordable childcare, income support and paid leave such as Nordics, Belgium and France, tend to have relatively higher fertility than those offering only cash bonuses.

A typical “pro-natalist playbook” includes: baby bonuses (lump sums), child benefits (ongoing payments), tax relief for families, affordable childcare, and paid leave. Malta’s 2026 budget hits most of these, while it signals intent on leave and childcare (although no actionable new measures were announced). In the EU context, Malta is now on par with the most family-friendly nations in terms of spending and incentives, at least on paper.

Evidence so far: Do incentives boost births?

The effectiveness of pro-natalist measures is hotly debated. Studies consistently find that one-off cash incentives tend to have only modest, temporary effects on fertility. For example, a UN policy review notes that financial bonuses can nudge up birth rates briefly, but “such increases are usually short-lived”. They often cause couples to bring births forward rather than having more children overall. For example, Poland’s “Family 500+” caused a spike in births in 2016–17 (especially among mid-career women), but by 2020 fertility had leveled off again. Even large expansions often fade.

Evidence suggests larger, comprehensive programs can have more sustained impact, but even then, the gains are incremental. Macro-level analyses find that longer paid leave and child services do correlate with higher fertility. For instance, one review found that each additional 10 weeks of paid leave is associated with roughly a 2% rise in birth rates.

Childcare availability matters too, though its impact is harder to isolate. Holistically, research on France implies that its decades of aggressive family policy have boosted the Fertility Rate by only about 0.1–0.2 children per woman.

Thus, policymakers acknowledge that pro-natal programs are long-term projects. As one analyst notes, a policy that adds just 0.1 children per woman over decades can mean millions more people down the line. But it also means rapid demographic fixes should not be expected. In Malta’s case, these measures may slowly raise birth rates, but they are unlikely to instantly restore a replacement level (2.1) by 2030.

Will Malta’s new package work?

The big question is whether Malta’s 2026 measures will move the needle significantly, given its unique circumstances. There are arguments both ways. On the plus side, financial barriers can indeed be a main constraint. By rewarding families with children, the budget may make choosing a second child more feasible for many couples. The tax changes are especially generous for most middle-income parents with two children, who will see vastly lower tax bills.

Studies do suggest that cash incentives on their own are usually not enough, but Malta’s new reforms are a further layer on an existing robust baseline of services. There are however several challenging factors. For starters, even if taxes fall, Maltese families are still financially burdened by other factors, chief among which is housing affordability.

Malta also has other significant non-monetary hurdles. For example, Maltese women already have a high employment rate. Working and having multiple children requires more than cash: it needs flexible work culture and shared childcare. Currently, Malta’s paid leave still lags leading European peers, and workplace norms remain generally traditional. If women feel pressured to choose between career and family, money alone may not change that calculation.

Sceptics caution that fertility is shaped by deep structural and cultural forces, not just economics. Nearly all developed economies have seen birth rates fall as living standards rise. The broadly accepted explanation is that as societies industrialised and moved away from agriculture, children ceased to be an economic asset contributing to family income and instead became a financial responsibility.

Bottom line

In balance, the 2026 budget represents a bold experiment. It takes the country’s demographic crisis seriously, deploying an ambitious pro-family fiscal package. It addresses the financial side of child-rearing on an unprecedented scale in Malta.

It will likely help, but it’s far from a magic fix. Fertility trend changes are slow, and non-financial barriers may remain the main obstacle. In the end, Malta might be fighting a losing battle on demographics. Whether these incentives can spark a genuine cultural shift remains to be seen.