Dutch gov't considering income tax cut with lower tax bracket

The Dutch government is considering introducing a third income tax bracket so that people pay less tax on part of their income, sources close to the Budget Day talks told the Telegraaf. They stressed that the measure is not set in stone. The government wants to improve the purchasing power of lower-income and middle-class households. This measure is not targeted enough - high earners will also pay less income tax.

Currently, income tax has two brackets for people who have not yet reached state pension age. In the first bracket, people pay a rate of just under 37 percent on their income up to approximately 75,000 euros. Earnings over that amount are levied at 49.5 percent. In the plans currently on the Cabinet’s table, a new first bracket will be introduced so that everyone will pay less tax on the first part of their income. The rate for the bracket and the amount up to which it will apply is not yet clear.

The Telegraaf’s insiders stressed that the government is still considering other, more targeted purchasing power plans in the budget discussions. However, targeted measures are often more complex to implement.

The introduction of a new tax bracket is a striking measure in the context of complexity. In 2020, the Rutte III Cabinet reduced the number of income tax brackets from two to four to make the system simpler and easier to understand. Adding one back would make the system more complex again.

On the upside, because the previous change was so recent, it is a relatively easy measure to implement. The old brackets are still in the Tax Authority’s IT systems, so it would simply be a matter of reactivating one and adjusting it to the desired rate.

The Schoof I Cabinet should conclude its budget talks this week. On Friday, the Council of Ministers must approve the national budget for 2025, which will be presented on Budget Day on Tuesday, September 17.