Budget Day 2024: more purchasing power and a return to fiscal discipline

News item | 17-09-2024 | 14:03

Next year most people will be financially better off. It will pay more to work due to cuts in income tax, and measures on purchasing power will prevent a rise in poverty. The government will also invest heavily in our security, and the budget will absorb the recent financial setbacks concerning tax on income from savings and investments (‘box 3’) and the extra money paid under the scheme to provide redress to parents affected by the serious failings in the childcare benefit system. The budgetary frameworks and fiscal rules for this government’s term in office have been put in place. This represents a return to fiscal discipline by the government. These matters and more are addressed in the Budget Memorandum and the 2025 Tax Plan which the Minister of Finance, Eelco Heinen, and the State Secretary for Tax Affairs and the Tax Administration, Folkert Idsinga presented today – also on behalf of the State Secretary for Benefits and Customs, Nora Achahbar – to the House of Representatives.

The Netherlands is among the world’s most prosperous countries. Our level of wellbeing is high and people are generally satisfied with their lives. But averages do not tell the whole story. For example, some people face the worry of not knowing whether they will be able to pay their bills at the end of every month. Others are unable find a home, concerned about the number of asylum arrivals, or worried about their security. There are also staff shortages and a lack of space, and the public finances will deteriorate if no action is taken. These are pressing problems that the government is addressing.

Government tackling problems

To make sure it pays more to work, the government will lower the rate payable in the first income tax band and introduce a new second band. For people in financial difficulties there will be a targeted package of measures to address, for example, the issue of problem debt. The school meal programme will be continued. To prevent more people falling into poverty, housing benefit and supplementary child benefit will be adjusted. The government also plans to build as many new homes as possible, with a target of 100,000 new homes per year.

Security is a priority for this government. In the coming years there will be more money available for the police and – in order to bring migration under control – for border control. The government will also invest heavily in the armed forces, bringing Dutch defence expenditure into line with the NATO norm of 2% of gross domestic product (GDP).

Minister Heinen: This government is here to tackle the problems facing ordinary people in the Netherlands. A person who works hard and earns an average wage should have something to show for it at the end of the day. It’s not acceptable in a prosperous country like the Netherlands for some people to endure years of adversity because they have to wait for care or can’t find a home. We also have to be careful with taxpayers’ money and not leave future generations to pick up the bill. With this Budget Memorandum, the government is taking an important step in tackling these challenges. This has entailed making clear and necessary choices.

State Secretary Idsinga: With this Tax Plan, we are starting to fulfil a number of important commitments which this government has made. We are supporting working people on middle incomes and various vulnerable groups, ensuring the Netherlands remains attractive to businesses and taking a number of tax measures that will help keep public finances healthy. I am also committed to the continual improvement of our tax system.

State Secretary Achahbar: Too many people are facing hardship. They face the worry of not knowing whether they will be able to pay the rent and their grocery bills at the end of the month. In order to improve people’s socioeconomic security, we are making a number of improvements to the supplementary benefits system. People will get longer to apply for benefits, and people whose partners are, out of necessity, unable to be with their family, will have the same right to benefits as single people. An additional €2.3 billion was previously made available to improve the various additional channels being used to provide compensation to parents affected by the serious failings in the childcare benefit system.

Public finances

The government stands for healthy public finances and fiscal discipline, so that buffers are built up in good times that can be used in times of economic adversity. That avoids the need to raise taxes or pass on the bill to future generations. The government will therefore ensure that, within its term in office, the budget deficit will remain under 3% of GDP and the national debt will remain below 60% of GDP. The year 2026 will be a one-off exception in this regard. This is due to a one-off cost item relating to military pensions. In 2025 the budget deficit is projected to be 2.8% and the national debt 46.6%.

The Netherlands Bureau for Economic Policy Analysis (CPB) forecasts that in 2029 the budget deficit will exceed 3% and that the national debt will rise to over 60% in the medium term. The government is therefore reining in government expenditure. For example by reducing subsidies and the number of civil servants. But also by extending the comprehensive healthcare agreement to limit the rise in healthcare expenditure and by making choices in the field of social security. In addition the government is cutting expenditure on development cooperation and curbing the influx of asylum seekers.

Tax Plan 2025

Besides various tax measures that contribute to purchasing power, the Tax Plan also sets out a number of steps to improve the tax system. They include a proposal which eliminates the need for people filing tax returns to make complicated calculations when deducting additional transport costs related to illness or incapacity. Assessments show that certain schemes do not serve or no longer serve their intended purpose, or do not do so efficiently. The Tax Plan therefore includes a number of changes to business succession tax relief schemes and, as of 2026, the reduced rates of VAT for providing accommodation and certain cultural goods and services are being abolished. Sports associations are excluded from this measure and compensation will be provided for teaching materials in primary and secondary education. In addition, this Tax Plan will again tackle a number of undesirable tax avoidance arrangements, such as those employed in connection with real estate.

The government wants the Netherlands to remain attractive to businesses and is enhancing the business climate through a number of changes to the tax system. One of those measures is the retention of the tax deduction for ‘expat’ employees, although it will be amended: a 27% deduction will be allowed for a period of five years. The dividend tax share buyback relief will also continue to be available. Listed companies can use the exemption to buy back their own shares.

The government attaches great importance to healthy public finances. It is introducing the tax measures outlined in the framework coalition agreement and taking steps to offset a number of financial setbacks. Tax on games of chance will be increased in a number of steps, the previously announced reduction in the box 3 rate is not going ahead, the net metering scheme will be abolished as of 2027, and employers will pay higher general unemployment fund (AWF) and invalidity insurance fund (AOF) contributions for their employees.