It took a long final negotiation of fourteen hours. It was only at five o’clock on the early Wednesday morning that coalition parties and the cabinet had figured out how they wanted to mitigate the exceptionally large decline in purchasing power of the Dutch. The result: a lot of money, but a little patience.
Nothing is possible this year, is the bad news. The money from the new package will only roll in 2023. But on the other hand, there are a large number of measures that will have an impact well beyond the coming year, after the current purchasing power crisis has hopefully subsided. This is apparent from conversations with sources around the coalition and the cabinet.
Turbo on minimum wage
For example, the minimum wage will rise sharply at the beginning of next year, by 10 percent. The cabinet had already intended to increase this in the coalition agreement, but is now putting the turbo on it. As a result, the minimum wage will rise faster and further. This should not only help working people, but also retirees and people on benefits. Because the minimum wage also increases the benefits linked to it, such as the state pension AOW and social assistance.
In order to also support people’s income above the minimum, the first rate of income tax is reduced. Working people will have more of their salary from next year because a tax credit will increase especially for them, the employed person’s tax credit. How much exactly will only become clear on Prinsjesdag.
The housing benefit will be permanently higher, as will the child budget for families with three children or more. This should prevent nearly one in ten children from growing up in poverty next year, as the CPB predicted two weeks ago.
Temporarily mute
And then there are the temporary measures to dampen the purchasing power blow. Excise duties on fuel will be lowered even longer, until the middle of next year. There will again be a discount on the energy tax and the energy surcharge of around 1,300 euros for vulnerable households will also return. The health care allowance will also be increased temporarily and with a one-off amount next year, a new addition to the toolbox to help households.
All interventions involve an amount of around 15 billion euros, sources report. That would be twice as much as the amount that Rutte IV already set aside last year to help households to stay out of financial problems due to the inflation and purchasing power crisis: almost 7 billion euros.
One-off windfalls
The lion’s share of the billion dollar goes to the temporary measures from the purchasing power plan. However, that will not have caused the coalition the biggest headaches. In recent months, the VVD, D66, CDA and ChristenUnie have all made it clear that they wanted to do more and thereby expand the target group to middle incomes, who also risk getting into trouble due to the high energy bill.
Moreover, these one-off expenses can be paid fairly easily from one-off windfalls, such as the higher revenues from Dutch natural gas.
The long-term choices are politically more complicated. The package shows that the four parties have agreed to lower the tax on works and increase it on wealth. The profit tax for companies will go up, as will some taxes on capital: two interventions that are sensitive to the VVD and CDA.
Politically sensitive profit tax
Most of the revenue should come from the higher profit tax: companies will from now on pay more tax on the first tons of profit they make. Groups with wealth that have paid relatively little tax to date, such as director-major shareholders, will also pay more tax. That should yield half a billion euros.
Savers in box 3 will also pay more tax due to the new package, as will investors and private landlords. The special tax credit for self-employed persons, the self-employed deduction, is also being phased out more quickly.
Finally, by means of a substantial tax increase on the extraction of oil and gas, the government wants to force energy companies to contribute more of their profits. Energy companies have been among the biggest winners in the economy in recent months, thanks to high energy prices.
No additional support in 2022
It is enough? The biggest concern of part of the opposition and trade union FNV is that the cabinet will not do more this year to soften the purchasing power boom. The Central Planning Bureau estimated in mid-August that the purchasing power of an average household will fall by almost 7 percent this year.
Prime Minister Mark Rutte (VVD) has been saying for months that an earlier rescue is simply not possible, because the systems or the people of the implementation services cannot handle it.
The cabinet hopes that the package that has now been announced will arrive on time. For the time being, the purchasing power blow is not nearly as hard for households that still have an energy contract with a lower price. But the pain is already being felt widely: more than half of households have a contract for energy or gas with a variable price, consumer watchdog ACM reported on Tuesday.
Everyone gets hit at a different time, and no one equally hard. This makes providing effective help extremely difficult. So far, many of the measures have turned out to be untargeted and unbalanced: for example, a reduction in VAT on energy bills mainly benefited high incomes. It remains to be seen to what extent the cabinet is now able to help with these billions in a targeted manner, remains to be seen in the coming winter, when the heating is switched on and the bill becomes clear.