Hungary yesterday passed a law exempting women with two or three children from paying income tax as part of a costly drive to try to reverse population decline.

Prime Minister Viktor Orban's nationalist government has since 2010 enacted several measures to seek to boost the birth rate, including subsidised loans, housing allowances for families and tax exemptions for women with four or more children.

Under the new law approved Tuesday in parliament, mothers of two under the age of 40 will get lifetime income tax exemptions from next year, with the benefits gradually expanded to all mothers of at least two by 2029.

Mothers of three will be exempted from income taxes from this October under the legislation passed on Tuesday.

Orban has touted this as "Europe's biggest tax reduction programme" that will turn Hungary into a "family tax haven" although it "isn't easy to achieve financially".

Economists warn that the measures pose a substantial budgetary challenge and the government has admitted they will cost 2.38 billion euros ($2.71 billion) by 2029.

Critics accuse Orban of a pre-election spending splurge ahead of polls scheduled next year in the central European country of 9.5 million.

Hungary's fertility rate has declined in recent years to 1.31 live births per woman in March, according to official statistics, down from a peak of 1.61 in 2021, above the EU-wide rate of 1.53 that year.

The government's goal is a fertility rate of 2.1 by 2035, which it says would reverse the population decline.

In 2011, Hungary's birth rate was at a record low of 1.23.