Series of small tax increases to close budget gaps

That is the provisional conclusion of the coalition consultation on the Spring Memorandum, which was concluded late in the night on Thursday. Prime Minister Rutte hastened to report afterwards that there is still no agreement, first he will talk with Minister Kaag (Finance) with other parties: “We really want to give the opposition groups the opportunity to find all kinds of things.”

Those involved do not want to say much about the agreements that have been made, so that opposition parties do not feel that they are faced with a fait accompli. But broadly speaking, there is a correct picture, with which the cabinet will go to the opposition in the coming weeks. The coalition will then complete the work in its own circle by mid-May.

‘Complicated puzzle’

Group leaders have consistently spoken of a ‘complicated puzzle’ that had to be put together in recent weeks. The government and coalition had to look for money to pay for, among other things, an increase in the state pension, higher Defense expenditure and savings tax compensation.

The solution seems to have been found by putting together a lot of small puzzle pieces. The most obvious tax increase is the lowering of the threshold after which companies have to pay the high (25.8 percent) instead of the low (15 percent) of profit tax. That will go from almost 4 tons back to 2 tons, which extra tax yields about 1 billion euros. There was also talk of increasing the low rate, but that does not seem to be going ahead.

Tax benefits

In addition, there are cutbacks on tax benefits for businesses. For example with the ‘expat scheme’, under which foreign employees receive 30 percent of their salary tax-free for five years. This enabled companies to hire people from abroad more cheaply with knowledge that Dutch employees do not have. This benefit can be limited to a maximum amount. For example, professional football players with a royal salary now also receive the tax benefit on their entire salary.

The wages that director-majority shareholders pay themselves as the boss of their company should also generate more tax money. By cutting exceptions, the coalition parties want to arrange that they will be obliged to pay themselves a higher wage, which generates more income tax. Box 2, where these entrepreneurs store their capital, must also be taxed more heavily.

‘windfall’

With a series of such smaller reforms and tax increases, the parties hope to round out the financial picture. Cutbacks, for example in the climate or nitrogen fund, were not a favored option for the parties. There was talk of taking a bite out of the Wopke/Wiebes fund to pay the costs of the compensation for savings tax. But that need seems less urgent after a provisional ‘windfall’ came from the box 3 tax.

The bill for compensation for citizens who had paid too much tax appeared to be somewhere between 7 and 12 billion, depending on who would get money back. But the parties are now waiting for a new ruling from the highest court that should provide more clarity about how many people are entitled to compensation. As a result, the bill is currently ‘only’ 4 billion euros. But it may only be a postponement and the billions specter from box 3 towards Prinsjesdag will reappear.

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