Largest purchasing power jump in 20 years; Workers benefited, welfare recipients didn't

Purchasing power increased by an average of 3.6 percent in the Netherlands last year, the largest increase in over 20 years. Employees benefited the most, people receiving welfare benefits the least, Statistics Netherlands (CBS) reported on Thursday. Pensioners had their first increase in purchasing power in three years.

Purchasing power looks at the main source of income in a household. For people in paid employment, purchasing power increased by an average of 5.3 percent last year. This is largely due to a 6.8 percent increase in collective labor agreement wages. Inflation of 3.1 percent brought the real wage increase down to 3.7 percent.

Employees also benefited from the renewed increase in the labor tax credit. Many employees also worked more hours, increasing their purchasing power. Conversely, a quarter of people in employee households saw their purchasing power dampened by job losses or fewer hours worked.

Self-employed people saw their purchasing power increase by 3.1 percent on average. Reduction of the SME profit exemption and the self-employed person’s tax deduction dampened the increase.

People in welfare households had the lowest purchasing power increase last year at just 0.2 percent. The elimination of the energy allowance in 2024 had a big downward effect on the purchasing power of welfare recipients and other low-income households. The fact that their purchasing power didn’t decrease, on average, was due to increases in social assistance and state pension benefits, and the expansion of housing allowances and child-related budgets.

Due to changes in the child-related budget and a higher child benefit, couples with children generally saw their income increase more than single-parent households and couples without children. In two-parent families, purchasing power increased by an average of 5.6 percent. For single-parents, this was 4.8 percent.

For pensioners, purchasing power increased by 1.8 percent, on average. “This was the first increase in purchasing power after three years of decline,” CBS said. The main reason was an increase in state pension benefits. People with supplementary pensions also benefited from pension indexation.

Pensioners in the lowest decile group did experience a small decline in purchasing power. “The higher state pension and housing allowance could not fully compensate for the loss of the energy allowance,” CBS said.