Middle income households could be hard hit by government’s recovery plan

Higher tax burdens placed on middle income households could mean some workers will only see 130 euros net if they earn 1,000 euros extra in monthly salary, tax experts told the Telegraaf. The issue is the way in which the Cabinet has put together its plan to improve purchasing power, particularly for low income households, the experts claimed. If unaddressed, it could hit the country at a time when a majority of parliamentarians want people to receive bonuses for working full-time instead of part-time to combat shortages on the labor market.

Soaring inflation this year, driven largely by the energy price spikes after Russia launched a war in Ukraine, pushed the Cabinet to introduce a 17 billion euro plan to repair the damage. The plan was announced during the Prinsjesdag presentation of the 2023 budget last week.

“The tax burden on every extra euro earned will rise considerably for middle incomes,” said Hugo Erken of Rabobank. “This will affect nurses, police officers and teachers, among others.”

The Cabinet’s plan includes increases in some subsidies and benefits, a 10 percent increase in the minimum wage and state pension, and the lowering of some taxes like the first income tax rate. “These tax credits and allowances are income-related and become lower the more you earn,” Erken Explained. “The problem with this is that you lose the right to discounts and allowances if you receive more gross salary. This leads to a high tax burden on extra work. By now turning all of these financial knobs, this problem has been exacerbated and passed on to the middle incomes.”

“It no longer pays to invest extra in your own development in order to earn more, because you have to turn it in right away. A lot of tax money ends up with people who don't work,”said Reinier Castelein, the chair of labor union De Unie. “Any incentive to stimulate the earning capacity of the Netherlands is disappearing for both middle and lower incomes.”

Essentially, every extra euro earned by promotion, changing jobs, or increasing hours will not necessarily lead to an improved position. The newspaper claimed that the worst-case scenario is one where 87 percent of extra euros earned is collected in some form of tax. "We have a huge problem with the tax burden and that will only get worse with the plans," said tax expert Leo Stevens. “It seems as if our legislators have become confused by the tax system, have lost their way and have lost sight of tax principles.”

The Telegraaf analyzed the tables included in the budget to show the impact of the tax measures. It shows that someone earning a gross annual salary of 45,000 euros will pay 57 percent in tax on every extra euro earned initially, and then 87 percent on extra euros earned after a threshold is reached. The tax burden on those earning 35,000 euros per year could rise from 76 percent to 81 percent as a result of the plan, the newspaper claimed.

These measures will counteract any positive gains on the workforce from a full-time bonus, Stevens said. “Now you get a very remarkable effect. If people feel compelled to work more because life is becoming more and more expensive, then with these tax measures you will see that additional work does not pay off.”