Income tax cuts to average €800 in new plan

The Cabinet's tax plans will give a household with one or two tax workers a tax advantage that averages at 800 euros per year. This is according to the outlines of the coalition agreement which was presented to the Ministry of Finance on Wednesday, NOS reports.

The total burden reduction is 5 billion euros. This plan is called Package 1 and it will be implemented in 2016, even if the opposition parties in the Tweede Kamer, lower house of parliament, ultimately do not support the tax reform.

The burden reduction is achieved with a tax advantage for all workers - an increase in the earned income tax discount of hundreds of euros per year. There will also be an increase in income-related combination tax discount - the tax exemption for those who have kids under 12 years and a job. The tax rate will be reduced from 42 to 40 percent for those with middle incomes. And the childcare allowance will be increased, amounting to between 25 and 40 euros per month.

Employers who employ low-skilled or low-paid employees, the tax plan introduces the "labor costs advantage" - a kind of discount on the employer contributions. The Cabinet has earmarked a total of half a billion euros for this. People with higher incomes will also pay less tax in this plan - the tax rate of 52 percent will apply from 65,500 euros, instead of the current 57,500 euros.

The VAT increase on certain goods and services from 6 percent to 21 percent is part of Package 2. This package is negotiable and will implemented only if the coalition can get enough support from opposition parties.