How the Dutch Cabinet's 2025 budget affects your wallet; Deficit of €31.9 billion likely
The first Cabinet of Prime Minister Dick Schoof said in its debut budget plan for 2025 that it is expecting to spend 457 billion euros next year, but that collected revenue will total about 425.1 billion euros. Despite a shortfall of 39.1 billion euros, Finance Minister Eelco Heinen downplayed the deficit in his remarks about the annual budget proposal, which was presented to Parliament and the public on Tuesday. The Cabinet's budget plan also cleared up rumors about the proposed reduction in income tax rates, and made final its plans about the amount of income some workers recruited abroad will be able to keep free of tax.
Despite the pledge to spend more miserly, the Cabinet expects the national debt to swell next year to 548.4 billion euros, or 46.6 percent of gross domestic product. The debt-to-GDP ratio will rise for the first time since 2020 if the Cabinet's plans are approved. The annual deficit will be at about 2.8 percent. Still, Heinen wrote that the plans are more somber than what the Cabinet had intended. "After all, money must first be earned before you can spend it," he wrote. "This Cabinet wants to be frugal with scarce resources so that we can adapt to changing circumstances, and generations after us can also enjoy them."
Many aspects of the budget already leaked out, including the intent to spend an additional 5 billion euros in the coming five years on housing construction. However, next year only about 317 million euros will be added to programs to stimulate housing construction, and not the billion euros which was implied. The 683 million euros not being spent next year will instead shift to long-term planning for 2030, a Housing Ministry spokesperson told ANP. The Cabinet still wants an average of 100,000 new homes built every year.
Income tax changes & Expat tax break reduction
Plans to reduce income tax were finally confirmed in greater detail. There are currently two progressive tax bands for earned income in the Netherlands, with a tax of 36.97 percent for earnings up to 75,518 euros, with anything over that amount taxed at 49.50 percent. The Cabinet now wants to tax the first 38,441 euros at 35.82 percent, with income between that amount and 76,816 euros taxed at 37.48 percent. Earnings above that amount will still be taxed at 49.50 percent.
Savings should run up to about 445 euros per year, scaling down to about 250 euros as the individual's income rises. However this will be partially offset by a reduction in the general tax credit of up to 335 euros. At the same time, more people will have access to the maximum value of that tax credit.
Immigrants recruited abroad will also see a cut in the amount of earnings they can keep tax free, but the cut will not be as drastic as politicians proposed. Currently, immigrants who qualify for the scheme can keep 30 percent of their earned income tax free for up to five years, but this will fall to 27 percent starting in 2027.
Of greater consequence is the minimum amount these immigrants need to earn in order to qualify for the scheme. That will rise from 46,107 euros to 50,436 euros. This could make it harder for someone recruited by a university to work in a junior post-doctoral research position to qualify for the scheme, unless they can negotiate a higher wage band within the pre-defined contract scales.
The Cabinet also wants to increase the gambling tax for each time an individual wins over 449 euros. This tax will rise to 34.2 percent next year, and 37.8 percent in 2026.
Childcare subsidy will not rise with inflation; Renters & students take a cut
The benefit given to parents to help cover daycare and after-school care costs will not increase with inflation. As a result, parents will wind up paying over 100 million euros more to their care providers next year.
Additionally, those who qualify for a benefit to help with the cost of renting a home will not get the increase which was proposed by coalition parties before the summer. The increased amount which those tenants would have received was expected to reach 500 million euros, but instead that will be about 215 million euros.
Meanwhile, students at research universities, applied sciences universities and higher vocational institutions will still see their temporary additional stipend of 113 euros per month be cut. This amount was provided to those students no longer living at home as a means to counter inflation. It was already being phased out for vocational students after the summer break.
Company taxes more favorable, Asset tax rate holds steady
Companies wanting to buy back their own shares will largely benefit from the continuation of a dividend tax exemption. Corporate income tax deductions for interest accrued will also rise to 25 percent, which the Cabinet says is "more in line with the European average."
People who own more than 5 percent of a company's shares will pay a 31 percent tax on the income they receive from dividends and other profit distribution. That will fall by 2 percent compared to 2024, meaning those individuals will save about 214 million euros.
The tax rate on earnings from personal assets, known as the Box 3 rate, will be frozen at 36 percent. Also, any taxpayer who believes the Box 3 tax they were forced to pay on fictive gains which were unrealized will be able to apply for compensation. Those assessed an amount that was too high for the year 2019 must file their application by the end of this year, and each year thereafter has a five-year window for filing, meaning those with a claim from 2020 must file it by the end of 2025. Those whose assessments in 2017 and 2018 were too high must have already submitted their request.
Train ticket prices will rise next year, but fuel taxes will not
The cost of a ticket on Dutch national railway NS will rise by 6 percent, though this was initially projected to be 12 percent. This is the result of the extention of an ongoing temporary measure to keep fares lower, instead of increasing them at the rate of inflation over the past few years.
The additional money needed to maintain NS service will result in passengers paying the regular increase plus a third of the amount due to be added to ticket prices in 2024. This totals 6 percent for 2025. The NS and the government combined will match this amount to provide the NS with enough operating capital.
The plan to keep passengers paying an artificially lowered rate is meant to stabilize passenger figures. These fell substantially during the coronavirus pandemic, but have not reached pre-pandemic levels. Once fully phased out, train passengers could be handed another shock when finding out what ticket prices will be in successive years.
Excise taxes on petrol, diesel, and LPG will not increase with inflation next year, and will still be subjected to the temporarily reduced rate put in place as inflation skyrocketed two years ago. For petrol, this will remain at 0.79 euros per liter, with diesel charged 0.52 euros, and LPG carrying a 19-euro excise duty.
Health insurance costs will rise, but the deductible could soon fall
Health insurance premiums will also jump by about 120 euros per year for individuals, roughly the same as last year. This should amount to an increase of just under 7 percent, bringing health insurance premiums to about 156 euros per month. Health insurers will begin to announce their rates for next year in the fourth quarter.
At the same time, those earning lower incomes should be able to offset some of this increase. Those who qualify for the health insurance benefit will receive an extra 6.50 euros per month.
The Cabinet also re-iterated its intention to slash the health insurance deductible from 385 euros down to 165 euros. However, this could result in longer waiting lists to see specialists, particularly if the staff shortages in the healthcare sector are not addressed.
Energy costs could jump higher
The average household can also expect to spend 60 euros more on electricity and gas, as rates are likely to rise by roughly 11 percent next year. At the same time, individuals who consume natural gas will see their energy tax fall by 29 euros next year, if the Cabinet's plan is approved.
Additionally, 578 million euros will be made available to help make homes more sustainable. The ISDE scheme helps people invest in energy savings measures, like heat pumps.
However, homeowners may want to think twice about using that money on solar panels. The scheme to make it more beneficial to send excess energy to the grid will be phased out from January 2027.
Where the money is spent, and how it is collected
The most money will be spent on social security, as was previously expected, with 114.9 billion euros set for that area. That includes 52.8 billion for the state pension program, 18.9 billion for permanent disability, 11.2 billion for unemployment and labor participation programs, and 5 billion euros for worker sick leave and other arrangements. Another 14.9 billion was earmarked for child subsidies.
The healthcare sector will also access 114.6 billion euros, while 53.4 billion euros will go to education, culture and science. That earmark is tied for third-highest along with funding for cities and provinces. Defense spending will also hit 19.4 billion euros, and 16.6 billion will go to the Justice and Security Ministry.
The government expects to collect 155.7 billion euros from direct taxes, including 97.3 billion from wage taxes and income taxes, and 46.6 billion from corporate taxes. A total of 6.6 billion euros should come from dividend taxes, and 3.6 billion euros will come from inheritance and gift taxes.
Indirect taxes will also account for 121.6 billion euros, with the government expecting 82.2 billion euros in revenue from value added tax and 12.3 billion from various excise taxes. Another 60 billion euros is expected from mandatory contributions to the national health insurance fund, and 46.8 billion euros will be generated from health insurance premiums. Money deducted from the paychecks of workers younger than the retirement age should account for another 40.9 billion euros.