Dutch deficit rises to 3.4%, leading to some higher taxes; 30 percent expat benefit reduced

The budget deficit of the Netherlands will rise to 3.4 percent this year, again above the European standard of 3 percent. This is evident from the Spring Memorandum from the Ministry of Finance. To combat this, several taxes will rise, while other budget items will shift or reduce. The 30 percent ruling, which provides a favorable income tax reduction for expats recruited abroad, will be scaled down. The Cabinet also intends to spend much more money to compensate people for higher energy bill.

"Strong shoulders will have to carry more burdens," said Minister of Finance Sigrid Kaag. In the Spring Memorandum, Kaag indicates the current state of the budget this year. The budget deficit will again fall below 3 percent in the coming years, she said. It will then likely come out at between 2.5 and 3 percent. The government debt remains below the European standard of 60 percent. It stands at 52.9 percent and will increase to 54.9 percent in 2025.

The Cabinet intends to raise billions of euros by shifting tax rates and discounts that mainly affect people with a high amount of wealth and a high income. This will compensate 60,000 people who successfully objected to the method used to calculate the asset tax. The increase in the state pension, which historically grows in step with the minimum wage, is also partly financed by this, although the elderly themselves will also pay a considerable portion.

State Secretary Marnix van Rij announced that the Cabinet had to look for 3.6 billion euros to compensate complainants for the wrongly paid Box 3 asset tax. The group that will be compensated may even be larger, but that will be decided later in the year. The government has decided not to increase the tax-free allowance, as originally planned. Currently, people do not pay a savings tax on assets up to more than 50,000 euros, which is doubled for people who file as tax partners. The Cabinet wanted to increase this amount to 80,000 from 1 January next year, but that is not going to happen.

A great deal of money was also needed to increase the state pension when the minimum wage goes up. The opposition enforced this in the Senate. Some of this money will be paid for by cutting the income support for retirees, called the IOAOW, over the next two years. The proposed increase in the elderly person's tax credit will also be scrapped. Older people will therefore contribute significantly to the increase of their own AOW, the state pension.

The 30 percent ruling, a tax benefit for expats, is also being stripped down. People recruited from abroad to work in the Netherlands who qualify for the benefit do not have to pay tax on 30 percent of their wages.

This will soon only apply to an income limit of a maximum of 216,000 euros per year. That limit, known as the Balkenende Norm, is equivalent to 130 percent of what a minister earns.

Those with investments in additional housing will also have to pay more, according to Van Rij. Anyone who buys a home to rent it out will soon pay more than 10 percent transfer tax. The Cabinet initially wanted to increase that rate from 8 percent of the value of the house to 9 percent.

People with a substantial interest in a company will also pay more tax on it from a certain income level.

For the first time, the government is already providing insight into plans that it wants to implement in the coming years. Normally that is only released in September on Prinsjesdag. This new system will give the Tweede Kamer more opportunities to influence next year's budget.

The government will spend 6.4 billion euros extra to mitigate the rise in energy prices. That was one of several plans which already been leaked in recent days. The Defense Ministry will receive an additional 2.2 billion euros so that the NATO standard will be achieved in 2024 and 2025. That is in line what the Tweede Kamer wanted, and is a response to the war in Ukraine.

In addition, about 2.5 billion euros is being earmarked to raise the minimum wage in steps by 7.5 percent. According to Social Affairs Minister Karien van Gennip, this is "good news" for people with a tight wallet. However, she doubts whether the increase is enough for everyone, because inflation is rising too fast. For the time being, the AOW state pension will grow along with that increase, the Cabinet has decided.