The tax windfall that more than 600,000 wealthy Dutch people receive thanks to the Supreme Court Christmas ruling on the Box 3 tax, is partly at the expense of other wealthy Dutch people. The cabinet will partly cover the costs of the mandatory tax refund (3.6 billion euros) with generic tax increases in Box 2 and Box 3. This is stated in the Spring Memorandum, the interim adjustment of the national budget.
A majority in the House of Representatives asked the cabinet to finance the windfall for the wealthy by recovering the costs from the same group: the wealthy. Due to the high inflation, many households with a below-average income find themselves in financial difficulties. The House therefore considers it unrealistic to tax that group even more heavily, in order to be able to pay for the windfall for Dutch people with a lot of savings and investments. The government therefore agrees with that wish. ‘Concerns about wealth inequality in the Netherlands are widely shared’, writes Minister of Finance Sigrid Kaag in her explanation of the budget amendment.
Major shareholders
The planned increase in the tax exemption threshold in Box 3 will be scrapped. At the moment, that threshold is EUR 50,650 per person (EUR 101,300 for tax partners). The government coalition wanted to increase this exempt amount in three steps to 80,000 euros per person. By not doing this, the cabinet will save 300 million euros per year.
The rate in Box 2, which major shareholders pay, will also increase. Anyone who annually receives more than 67,000 euros in income from his company (or companies) will pay 29.5 percent tax on this from next year instead of the current 26.9 percent. Director-major shareholders (entrepreneurs who are directors of their own company) will also pay more income tax (Box 1). This will provide the Treasury with an average of EUR 350 million in additional tax revenue over the next five years.
Minimum wage
In the Spring Memorandum, the cabinet also honors another widely shared wish of parliament: an increase in the statutory minimum wage, while retaining the link with the state pension. ‘We are taking a first step to meet the major concerns in both Houses about the income position of low-income and elderly people,’ Kaag writes in her letter to parliament.
The statutory minimum wage (based on a 36-hour working week) will increase by 7.5 percent in three annual steps from next year. This wage increase was already in the coalition agreement, but would then be implemented in two steps from 2024. The increase now starts a year earlier. Contrary to what was agreed in the coalition agreement, the link with the state pension will be maintained. That costs 2.4 billion euros per year.
This windfall for the elderly is also partly a cigar from its own box. In order to cover the costs, the cabinet is waiving the intended increase of the elderly person’s discount by 376 euros. This measure reduces income inequality among the elderly. It affects AOW pensioners with a relatively high income, while retirees with a low income are not affected. In addition, the AOW income support will be abolished as of 2025 (and already phased out before that). The Fiscal Old Age Reserve, which entrepreneurs can use to set aside tax-free money for their retirement, will also disappear. These tax increases for pensioners add up to a saving of 1.8 billion euros per year.
Defense budget
Earlier than planned, the cabinet will increase the defense budget to 2 percent of gross domestic product, the NATO standard. This is also in accordance with the wishes of the House of Representatives. This amounts to a structural expenditure increase of 2.2 billion euros from 2025.
The above-mentioned tax increases are not sufficient to cover all additional expenses. That is why the cabinet is desperately trying to get hold of its investment funds. The budget of the National Growth Fund, which finances innovation and education projects, will be cut by 660 million euros this year. The Climate Fund (35 billion euros) and the Nitrogen Fund (25 billion euros) also have to surrender. The government is reducing the budgets of these funds by 880 and 660 million euros respectively.
The government is also allowing the budget deficit and government debt to rise slightly. During this cabinet term, the budget deficit will be about 0.2 percentage point higher than the cabinet had predicted when it took office.