Hungarian women with four or more children will be exempt for life from the payment of income tax, announced the prime minister, unveiling plans to increase the number of births.
This is a way to defend the future of Hungary without relying on immigration, said Viktor Orban.
The right-wing nationalist is particularly opposed to the immigration of Muslims.
The Hungarian population is decreasing by 32,000 people a year and women have fewer children than the EU average.
As part of these measures, interest-free loans of 10 million forint ($ 36,000) will be offered to young couples, to be canceled as soon as they have three children.
Mr Orban said that "for the West", the answer to the declining birth rate in Europe was immigration: "For every child missing, there should be one and the numbers were going to well.
"Hungarians think differently," he said. "We do not need numbers, we need Hungarian children."
While Mr. Orban was delivering his speech on the state of the nation, the latest demonstrations were taking place in Budapest against the policies of his government.
About 2,000 people gathered in front of his office and others blocked one of the main bridges crossing the Danube.
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The correspondents said that the biggest applause during his speech was the announcement of a seven-point plan to increase the fertility rate.
Other points in the government plan include:
- A commitment to create 21,000 nursery spaces three years from now
- 2.5 billion dollars more to spend on the country's health system
- Housing subsidies
- State support to buyers of seven-seater vehicles
Mr. Orban ended his speech with: "Long live Hungary and long live Hungarians!"
The average number of children that a Hungarian woman will have during her lifetime (fertility rate) is 1.45. This places the country below the EU average of 1.58.
France has the highest fertility rate of the EU – 1.96 – and Spain has the lowest, with 1.33.
Niger in West Africa has the highest fertility rate in the world, with 7.24 children per woman.