Family and child benefits play a key role in supporting households, with OECD countries spending around 2% of GDP on them on average in 2023. Childcare benefits are generally associated with higher levels of employment, particularly for women. Countries have to address the trade-offs involved in ensuring family support is carefully designed to benefit those who require them most while not jeopardising activity rates. This chapter sets out some of the current measures governments are implementing to foster savings in this area. These measures fall broadly into a number of categories including consolidating, streamlining and eliminating overlapping benefits; and adjusting conditionality and eligibility rules. Some measures entail introducing or applying tighter criteria for means-testing and greater phasing out of benefits above specific thresholds. Others include measures implemented to reduce fraud.
Restoring Public Finances
Enabling Effective Government
Abstract
Several governments have implemented savings measures for family and child benefits. These measures focus on tightening policy criteria that determine eligibility and improving co-ordination across government to address inefficiencies. RPF Survey respondents also achieve savings through focusing benefits on early childhood, targeting expenditure on lower-income individuals and families, and ensuring that benefits do not overlap. Targeting involves resolving some trade-offs, in particular in terms of preserving effective labour supply.
Reform initiatives and savings measures
1. Tightening eligibility criteria
Reducing eligibility for certain groups, Increasing means testing, including through the use of both income tests and asset tests.
Phasing out benefits more quickly above certain income thresholds and beyond certain time periods.
Freezing and postponing planned benefit increases.
2. Improving co-ordination across government to address inefficiencies
Developing instruments that identify overlaps in benefits.
Eliminating programmes where they are shown to lack effectiveness.
Standardising programme delivery requirements across ministries and local governments.
Improving compliance and reducing fraud.
Family and child benefits have multiple effects and multiple objectives (Adema, 2012[1]) (Thévenon, 2011[2]). From an economic and budgetary perspective, they can help increase the labour market participation rates of parents, particularly women, when they involve paid maternity, paternity and parental leave, increasing access to child care services and out-of-school-hours services, at a time when ageing populations and declining fertility rates can dampen labour supply. However, the level of support can make a difference. In some cases, cash benefits can work against labour force participation in cases where they are high to the point that they provide incentives not to work. Benefits can also help families raise children in a more positive environment, thus producing longer terms effects in terms of social development and education. Those longer-term effects from a life cycle perspective have been qualified as part of the “Social Investment approach”.1
In 2023, governments in OECD countries spent an average of 2% of GDP on family and child benefits, as shown in Figure 4.1. Such expenditure also increased significantly during COVID with many countries showing a spike in 2021. Over a longer time period, the increase is modest at the aggregate level compared to the pre-COVID period in 2015, even if countries show a very mixed picture, some with significant increases and others with some reduction.2 Overall such spending is equivalent to 4.3% of general government expenditure. However, there is considerable variation around these averages. Nordic countries tend to have especially high expenditures in this area. In addition to direct spending, tax expenditure also play a role in the area of family and child benefits, as a number of tax breaks exist.
Expenditure on family and children, 2023
Note: Data not available for Canada, Chile, Costa Rica, Mexico, New Zealand, South Korea, Türkiye, and the United States. OECD average is unweighted.
Source: OECD Public finance by function - government at a glance indicators, yearly updates, https://data-explorer.oecd.org/s/4da.
Early childhood support can cover a combination of educational, social and health services, and can also be provided both by national and local governments. Hence, while the figures above show aggregate expenditure, such expenditures may reflect a number of spending decisions, some made through the budget at national level, and others made at local levels.
Childcare benefits are generally associated with higher levels of employment, and in particular employment of women. This effect tends to be strongest in countries where the women’s labour participation rate is low (Narazani et al., 2025[3]). In fact, at the aggregate level, there is a positive association between participation rates and expenditure levels (Figure 4.2), i.e. as public expenditure on family and children’s programmes rises, overall women’s participation rates tend to rise even if this should not be interpreted as direct causation. This relationship is stronger than the relationship between participation rates for men and expenditure levels. However, high spending levels indicate a plateau, and even a slight downtick. Increases in spending tend to have more pronounced effects at lower levels of women’s labour market participation, with the marginal effect of higher spending diminishing as participation rises.
Expenditure on family and child programmes vs labour market participation rates for women
Note: All labour force participation data is from 2024. Expenditure data is from 2021, except Australia (2022), Canada (2022), Chile (2023), Colombia (2023), Costa Rica (2022), France (2022), Israel (2023), Japan (2022), Korea (2022), Mexico (2023), New Zealand (2022), the United Kingdom (2022) and the United States (2023). Expenditure data includes cash spending, spending on services, and tax breaks with social purposes.
Source: Labour force participation rate data is from OECD Labour Force Statistics, https://data-explorer.oecd.org/s/4db. Expenditure data is from the OECD Social Expenditure Database (SOCX), https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html.
This should not obscure the fact that overly generous family policies can have adverse consequences for women’s occupational integration, as well as greater wage penalties when they re-enter the workforce. For example, an OECD study of a child allowance in Poland found that while the programme reduced child poverty, it reduced the labour force participation rate of women with children by 2-3 percentage points, with a greater impact for women with lower skill levels (Magda, Kiełczewska and Brandt, 2018[4]).
As in other areas of social welfare, a focus of many countries is to address these trade offs to ensure family support policies are carefully designed to benefit those who require them most, while also not being so generous that they jeopardise activity rates. One remedy is to ensure that child allowances focus on those already working. It can mean focusing child allowances on mothers with young children, or low-income families, as these cohorts are impacted more by changes in childcare costs in the short term, and gain greater social and economic benefit over the medium to long term. This also has implications for data collection and evaluation, as linking childcare benefit database with existing tax and social-security systems can help ensure more accurate assessments here, while reducing administrative overhead.
Throughout the chapters on old age pensions, unemployment and child and family benefits, the data on expenditure follow the System of National Accounts (SNA). In this context, the Classification of the Functions of Government (COFOG) was developed by the OECD for analysing transactions by their function (i.e. the purpose for which the funds are used). First level-COFOG splits expenditure data into ten groups (general public services, defence, public order and safety, economic affairs, environmental protection, housing and community amenities, health, recreation, culture and religion, and social protection), each of which is divided further into up to nine sub-groups. In the chapters on government operations, COFOG data is also used at level 2. The SNA aggregates several components included in social transfers, including cash vs in kind transfers.
In addition, the OECD Social Expenditure Database (SOCX) was developed to provide reliable and international comparable statistics on public and private (mandatory and voluntary) social expenditure at programme level, as well as net (after tax) social spending indicators. To be considered a social expenditure item in the dataset, the programme’s benefits must aim to address one or more social benefits, must involve interpersonal distribution or compulsory participation. SOCX is split into nine social policy areas (Old age, Survivors, Incapacity-related benefits, Health, Family, Active labour market policies, Unemployment, Housing, and Other social policy areas). It distinguishes between public and private on the basis of who controls the relevant financial flows (public institutions or private bodies), and distinguishes between mandatory private, voluntary private and exclusively private. It also provides information on net (after tax) social expenditure, adjusting gross spending for direct taxation of benefit income, indirect taxation of consumption by benefit recipients, and tax breaks for social purposes. SOCX provides far more granular detail on social expenditure.
In addition, at European level, the European System of Social Protection Statistics (ESSPROS) has a wider scope than SOCX, as it also includes information on the financing of social expenditure. However, SOCX arguably has the largest scope in terms of social domain, as it considers nine social policy areas compared to ESSPROS’ seven functions.
In addition to direct spending, the use of the tax system to provide support to families is increasing. The OECD Family Database shows that tax breaks for families increase by around 27% between 2010 and 2021, although they remain relatively small at around 0.22% of GDP as of 2021 (OECD, n.d.[7]). This database shows that expenditure can take the form of tax credits for those with young children and VAT concessions on child-related goods.
Figure 4.3 provides an overview of recent policy measures related to family and child benefits. The measures reported in the RPF Survey focus on fiscal savings. They do not provide a complete overview of recent policy trends in the area.
Measures approved or submitted to parliament for the fiscal years of 2025 and 2026
Note: Results based on 39 RPF Survey responses. Measures originally reported as “other” in the RPF Survey have been recategorised, either into existing categories or into a new category “Implementing measures to reduce fraud”. Data is not available for France.
Source: 2026 OECD Survey on Restoring Public Finances, Question 4: Family and Child Benefits.
4.2.1. Consolidating, streamlining or eliminating programmes and overlapping benefits
Governments are consolidating and streamlining programmes as a way to achieve savings. Complex family benefit systems can make it more difficult to focus support to where it is needed most and can prompt regular churn as people become eligible and ineligible for different benefits, raising administrative costs. Furthermore, complex systems where eligibility is difficult to ascertain can open the door to fraud. Better integrated services can reduce cost burden through reduced risk of overlapping benefits and programmes. This also helps identify the best approaches to the issues an individual may be facing, allowing for more effective and efficient treatment (OECD, 2011[8]).
Given that family and child expenditure can be provided at both the national and local level, and in many different forms, the RPF Survey results indicate several examples of efforts to avoid fragmentation across different agencies and government levels:
During the discussion of Chile’s 2026 Budget Law, the Comprehensive Plan for the Well-being of Children and Adolescents was eliminated indicating that the programme was not functioning as intended. Additionally, a review of social development and family programmes was conducted with the aim of preventing the fragmentation of public programmes.
Mexico has introduced a budgetary annex that identifies all spending related to care. The measure generates efficiencies and savings by detecting functional overlaps between agencies and eliminating the dispersion of resources that were previously executed without co-ordination.
Thailand’s Department of Children and Youth is linking of databases across all agencies within the Ministry of Social Development and Human Security, and other agencies to provide information for verifying and considering the eligibility of welfare recipients throughout the system.
Chinese Taipei has set a single standard for child-rearing allowances, childcare subsidies and maternity benefits, meaning that local governments have guidance on how to set and amend these benefits. This leads to more predictable spending and lower risk of welfare competition across local governments.
4.2.2. Freezing or reducing levels of benefits
Several respondents reported freezing or reducing benefit levels:
Austria will suspend automatic inflation-adjustment of cash benefits for families for 2026-2027.
In Belgium, Brussels, the Common Community Commission has frozen a previously planned increase in the basic amount for child benefit, which is planned to save EUR 26.5 million in 2026.
Estonia has reduced the upper limit of the parental benefit from three times the average income (subject to social tax of the previous year) to two times the average income. This is expected to impact about 12% of all parental benefit recipients (Box 4.2).
The Netherlands has postponed a planned expansion of government spending on childcare (raising government spending EUR 6-9 billion) by two years, so that it will now take effect in 2029.
4.2.3. Adjusting conditionality and eligibility rules
Several respondents highlighted reforms to adjust conditionality and eligibility rules for family and child benefits, reducing the scope of coverage for these benefits and thereby fostering budget savings.
In Belgium, the Brussels Common Community Commission has excluded new international students from eligibility for child benefits.
In Poland, The Polish Aid Fund was established to assist Ukrainian citizens affected by the armed conflict in Ukraine, including the payment of family benefits to refugees from Ukraine. In 2025, the government amended the regulations governing the Fund, extending the permitted legal stay of Ukrainian citizens in Poland, specifying that the payment of child benefit is linked to the professional activity of Ukrainian citizens, as well as introducing certain restrictions on the entitlements of refugees from Ukraine.
Beyond the savings from conditionality rules, some governments are implementing broader reforms to foster labour market participation. Family benefits can also be made conditional on labour force participation. For example, job-search requirements for parents on income support can be made obligatory, especially where childcare support is available. (OECD, 2011[8]). This may require a calibrated mix of conditions, as illustrated by Estonia (see Box 4.2).
There are possibilities to add conditions for job-search requirements. While not reported in the RPF Survey, other examples exist. In Australia, the number of hours of Child Care Subsidy an individual is entitled to is determined by an activity test. This increases the focus of government support, while also ensuring that those who do receive benefits are more likely to enter the workforce (Australian Government, 2025[9]). In New Zealand, under the Sole Parent Support benefit, recipients must look for at least part-time work if their youngest child aged 3-13, and prepare for work if their youngest child is under three (MSD, 2026[10]).
The main purpose of Estonia’s Family Benefits Act is to support families with children and the raising of children. It categorises family benefits into three major groups: family allowances, parental benefit and maintenance allowance. From 2026, the Estonian government amended this Act to:
Reduce the upper limit of the parental benefit, so that it will be two times the average salary in the prior year rather than three times. While there were also initial special exceptions for the mother’s benefits, these have been abolished so that all parental benefits follow the same rules. The reform mainly impacts high earners.
Ensure that parental benefit is no longer reduced if the parent earns income from work. Previously, if income exceeded half the benefit ceiling, the benefit was reduced. The amendment is designed to encourage continued labour market participation during early childcare.
Ensure that insured people’s non-working spouses or partners for children over the age of three no longer pay for social security contributions. This change aims to encourage both parents to enter the labour market, with the view that children above the age of three can go to kindergarten and thus the parents should be able to re-enter the labour market.
Source: RPF Survey 2026, Ministry of Finance Government of Estonia (2024[11]).
4.2.4. Introducing or applying stricter criteria for means-testing
Savings can be achieved through means-testing, allows for a greater focus on those with lower incomes. Several respondents reported tightening means-testing criteria for family and child benefits. This has also been done as part of an effort to integrate benefits. Examples from the RPF Survey include:
Czechia introduced the “super allowance”, which merged four existing benefits into one: child allowance, housing allowance, housing supplement and living allowance. The reform includes a means test, which assesses both household income and savings, as well as assets.
Estonia, the 2025-2028 State Budget Strategy plans to shift certain universal allowances to means tested benefit systems in order to reduce costs.
However, some practical considerations are important to keep in mind. Means testing involve frequent income verification, which can increase administrative workloads. These can be limited through effective data integration of tax systems and family benefit administration databases, so that large portions of income reporting can be automatised. Administrations have to regularly monitor key indicators, such as cost per assessment, to help identify if the system is operating efficiently. Use of digital tools, such as online portals and automated compliance checks can significantly reduce administrative costs. Use of artificial intelligence can be of potential value here, as discussed in greater depth in OECD (2025[12]) and OECD (2024[13]).
Another important issue relates to work incentives, and effective marginal tax rates for benefit recipients, described as “Poverty Traps”. When benefits are withdrawn as income increases, recipients may face high effective marginal tax rates that reduce the financial gains from additional work. While some of the effects can be mitigated through appropriate design, the interaction between taxes and multiple benefits may have implication for labour supply incentives for some households (Immervoll and Pearson, 2009[14]) 3
4.2.5. Implementing measures to reduce fraud
Several respondents have implemented measures to reduce benefit fraud.
In Australia, the Strengthening Regulation of Early Childhood Education Act expands powers for authorised officers to verify the Child Care Subsidy programme is being administered correctly. Officers can cancel or limit approval of the subsidy if the programme is deemed to not meet quality, safety and other compliance requirements.
Finland has amended its Act on Child Maintenance Allowance. The amendment permits the government to verify the economic situation of parents in cases where the government pays for child maintenance due to the parent’s reduced ability to pay.
4.2.6. Achieving savings through reducing tax relief
Respondents also reported reforms to family and child benefits administered through the tax system:
In Belgium, alimony payments are classified as a tax-deductible expense, originally up to 80% of the payment amount. However, this was reduced to 70% in 2025, 60% in 2026, and will be reduced to 50% in 2027.
Costa Rica’s 2023 tax reform will impact family and child benefits through changes to deductions and exemptions which will have effects over 2025 and 2026. These changes aim to increase progressivity, so that higher-income households lose some benefits while lower-income families receive proportionally more. This is estimated to have a positive impact on government revenue.
Czechia has abolished the kindergarten bonus. When in place, it allowed parents to reduce their personal income tax liability by the amount they paid for a child’s placement in a preschool facility.
Italy has abolished the family tax credit for those over 30 years old, as well as for other family members not directly related to the taxpayer.
References
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