Government will collect more income tax in 2026; Deficit not as bad as anticipated

The Cabinet will receive more income tax to compensate for their decision to scrap a potential VAT increase on the culture, media, and sports sectors. This was stated in the Spring Memorandum, which is the annual update to the national budget, that was published on Friday. This measure is set to bring in 1.3 billion euros.

Tax brackets and tax credits normally increase with inflation. This will only happen by around half of the inflation from January 1, 2026, the Cabinet wrote. The average income will rise, mainly due to higher salaries. Citizens will pay 1.3 billion euros more in taxes than expected.

The Cabinet’s initial plan was to raise the VAT on the culture, media, and sport sectors from 9 percent to 21 percent. This would make newspapers, books, and tickets for events or sports more expensive. This plan was widely criticized by parliament and Dutch society. Pressure from the opposition, who have a majority in the senate, led to this plan being scrapped. The Cabinet was forced to find an alternative way to raise the money.

There was positive news for the government as the budget deficit was not as severe as previously anticipated. The latest estimation in September stated that the deficit would be 2.8 percent of GDP this year and 3.7 percent next year, but this has now been altered to 2.6 percent and 3 percent, respectively. The deficit is expected to increase in 2027.

The positive development is likely due to the nation’s economic growth, it is stated in the Spring Memorandum, not due to any changes that the coalition or the Cabinet have made. It was said that these changes had “hardly any effect” on the deficit.

The government’s debt will continue to increase. This year, the total amounts to 45.2 percent of the GDP, this is expected to rise to 49.5 percent in 2029. These percentages are also lower than previously anticipated.

During the discussions on the spring memorandum, a discussion arose about the “windfall formula” that determines when there is room to use windfalls for new investments.The Minister of Finance, Eelco Heinen, has said in the past that the government will not be using this formula. In the spring memorandum, he said: "We cover setbacks and at the same time also make a number of targeted investments. We do not pass on bills."

It is also stated in the Spring Memorandum that municipalities will be given three billion euros extra over the next two years. The Minister of Interior Affairs, Judith Uitermark, has said that she is happy that this money will be going to municipality finances and youth care.

Municipalities were set to receive a total of 2.3 billion euros less from the municipal fund in 2026. There was a lot of commotion about this among the smaller governments. With the extra investment, this setback has been partly reduced.

The Ministry of Interior Affairs has said that the Association of Netherlands Municipalities (VNG) and the government will continue talks about finance for the youth care. Municipalities have been struggling with money for this type of care, which they have been responsible for since 2015, for years.

In the coming years, the money allocated to the Social Support Act (Wmo) will increase annually by 75 million euros, reaching 375 million euros by 2030.