Slovenia’s family support system currently combines means-tested child benefits, universal allowances, and income tax deductions. These programmes operate in parallel with little co‑ordination. Tax deductions in particular deliver most of their value to higher-income households, weakening the system’s redistributive impact. In collaboration with the Slovenian authorities, the OECD designed a reform that would address these shortcomings by replacing the existing fragmented programmes with a single harmonised benefit. This study assesses the fiscal, distributional, poverty, and inequality impacts of this reform.
Harmonising family benefits in Slovenia
Abstract
Budget-neutral reform. Replacing the existing family support system with a single harmonised benefit would costs less than 0.04% of 2025 GDP. The parameters of the new benefit could be further adjusted to reach full budget neutrality or to free up resources.
Resources shift to lower-income families. The reform would redirect family support away from higher-income households. About 40% of the total fiscal envelope would flow to the bottom three income deciles, up from 31% under the current system.
Income gains for the bottom half. Families in the bottom six deciles would gain on average. Households in the first two deciles would see disposable income rise by close to 2%. Higher-income families would lose, with losses reaching 0.9% of the disposable income in the 9th decile.
Lower poverty and inequality. The reform would reduce the poverty rate by 0.7 percentage points (p.p.), and the child poverty rate by 2.1 ppts. The Gini coefficient would fall by 0.5 points.
Work pays. The in-work component of the new benefit would ensure that amounts rise with earnings at low-income levels, strengthening financial work incentives.
Slovenia currently channels family support through many separate instruments, including the child benefit, the large family allowance, and the family income tax allowance for families. These programmes operate in parallel with little co‑ordination, creating targeting inefficiencies and reducing work incentives.
The child benefit is a means-tested cash transfer. Amounts vary with family income, the number of children, and their educational level. The benefit phases out with a stepwise function as income rises. In 2025, the monthly amount for a first child in elementary school ranges from EUR 25 to EUR 144 per month. The large family allowance is a universal cash transfer to families with three or more dependent children. In 2025, it amounts to EUR 497 for families with three children and EUR 604 for families with four or more. The family income tax allowance allows families to deduct an amount from their taxable income. The deduction increases with the number of dependent children. Because it reduces taxable income rather than providing a cash transfer, it delivers larger benefits to households with higher marginal tax rates. This concentrates support among higher-income families and is the main source of regressivity in the current system. The family tax allowance is also the most expensive instrument, accounting for 10.6% of total PIT revenues in 2025.
The supplementary material provides additional details about the design of the current family benefits.
The proposed reform would replace the instruments described above with a single, transparent programme combining three co‑ordinated elements. A universal component would ensure a flat payment to all families above the highest income threshold. An in-work component would gradually increase the benefit amount as family earnings rise up to statutory minimum wage level, ensuring that work pays at low earnings levels. A means-tested component phases the benefit out above a second income threshold. Additional supplements support large families and lone parents. Box 1 summarises the design of the new benefit.
Replace the current system of general family benefits, namely the child benefit, the large family allowance, and the family income tax credit, with a single benefit characterised by the following features:
The supplementary material provides a detailed comparison of benefit amounts under the current system and the new benefit across family types and earnings levels.
This study assesses the reform package described above using the European Commission’s tax-benefit microsimulation model EUROMOD running on EU-SILC 2022 data. All reforms are evaluated against a 2025 baseline reflecting Slovenia’s 2025 tax-benefit system with nominally updated monetary variables.
The reform is designed to be revenue‑neutral: the cost of the new benefit is financed by abolishing three existing instruments. The three existing family support instruments together cost EUR 672 million per year, about 1% of 2025 GDP (Table 1). The family tax allowance accounts for the largest share: abolishing it generates EUR 402 million in additional PIT revenue, equivalent to 10.6% of total PIT revenues. Abolishing the child benefit saves EUR 250 million, and abolishing the large family allowance saves EUR 19 million.
The new unified benefit costs EUR 709 million per year. Abolishing the existing instruments generates savings of EUR 671 million. The indirect effects of the reform are modest. Abolishing the child benefit initially increases social assistance spending, as some low-income families lose entitlement to the child benefit but qualify for other means-tested transfers. Once the new benefit is introduced, social assistance spending falls below the 2025 baseline by EUR 7 million.
Taking direct and indirect effects together, the full reform produces a net budgetary deficit of just EUR 30 million, i.e. less than 0.04% of 2025 GDP.
Source: OECD calculations using the EUROMOD J1.0+ model and EU-SILC 2022 data.
The three existing instruments have very different distributional profiles (Figure 1). The child benefit concentrates roughly one fifth of its cost in the first income decile and phases out almost entirely by the tenth (Panel A). The large family allowance spreads its cost more evenly across deciles, in line with its universal design (Panel B). The family tax allowance is regressive: it concentrates in the top half of the distribution, increasing up to the sixth decile. Middle and upper-income families benefit most, because they have a higher taxable income base and face higher marginal tax rates (Panel C).
The new family benefit produces a very different distributional profile (Panel D). It channels similar shares of its cost, between 12% and 14%, to each of the bottom five income deciles. This reflects the in-work component, which maintains high benefit amounts up to middle earnings levels. Above the fifth decile, the new benefit decreases progressively. Due to its universal component, it still provides some support even to families in the top decile, which absorbs 3.3% of total cost.
Overall, the reform improves targeting. About 40% of the total fiscal envelope flows to the bottom three income deciles under the new benefit, compared to 31% under the current system.
Distribution of family support cost across the equivalised household disposable income distribution, by instrument and in total (% of total cost, by income decile)
Note: Deciles are based on equivalised disposable household income in the 2025 baseline, using the OECD modified equivalence scale.
Source: OECD calculations using the EUROMOD J1.0+ model and EU-SILC 2022 data.
The reform increases average household disposable income by 0.2% (Figure 2). Families in the first and second deciles see the largest gains: close to 2% of pre‑reform disposable income, equivalent to EUR 145 and EUR 236 per year respectively. Gains remain positive up to the sixth decile. Above this, the universal component of the new benefit does not fully compensate for the loss of the family PIT tax allowance, which had allowed higher-income families to exclude part of their income from taxation. Income losses reach 0.9% on average in the ninth decile, equivalent to about EUR 272 per year. Among households directly affected by the reform, gains in the bottom two deciles reach close to 5% of pre‑reform disposable income.
The reform produces both winners and losers (Figure 3). Winners concentrate in the bottom half: their share rises to 49% of individuals in the fourth decile. Losers concentrate in the top half, reaching 51% of individuals in the ninth decile. This pattern reflects the design of the new benefit: the in-work component maintains high benefit amounts up to middle earnings, generating net gains across the first six deciles. Above this, the flat universal component is not sufficient to offset the loss of the regressive tax allowance.
The reform reduces the overall poverty rate by 0.7 p.p. and the child poverty rate by 2.2 points (Table 2). Considering a counterfactual without any family support, the current system would reduce overall poverty by 1.9 p.p. and child poverty by 4.8 p.p. The new benefit achieves larger reductions: it cuts the poverty rate to 12.8% and the child poverty rate to 9.3%. The reform also reduces income inequality. Better targeting of family support towards lower-income households lowers the Gini coefficient by 0.5 points.
Note: OECD calculations using the EUROMOD J1.0+ model and EU-SILC 2022 data. Poverty line set at 60% of median equivalised household disposable income, anchored to the 2025 baseline.
The reforms described in this note were carried out as part of the 2025 Technical Support Instrument (TSI) project “Boosting the Usage of Distributional Impact Assessments through Microsimulation”, funded by the European Union. The beneficiary authority in Slovenia was the Ministry of Labour, Family, Social Affairs and Equal Opportunities. The reforms assessed during the project implementation, including those described in this note, were for capacity building purposes only and do not necessarily reflect the official views of the beneficiary authority.
The supplementary material provides additional analysis for Slovenia, including: an in-depth description of the current family benefits and a detailed comparison of benefit amounts under the current system and the new benefit for different family types across the earnings distribution.
More information on Slovenia’s tax-benefit system is available in the OECD Descriptions of Tax and Benefit Systems.
How do taxes and benefits affect disposable household income, benefit replacement rates, benefit adequacy, and financial work incentives? Find out using the OECD tax-benefit web calculator.
More information on the EUROMOD microsimulation model: here.
Contact: Sara Riscado (Sara.Riscado@oecd.org), Daniele Pacifico (Daniele.Pacifico@oecd.org) and Ella-Marie Assal (Ella-Marie.Assal@oecd.org).
This work is issued under the responsibility of the Secretary-General of the OECD, and does not necessarily reflect the official views of OECD Member countries.
This document was produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.
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