New Dutch government planning to reform the tax system
The current Dutch tax system
Currently, there are 4 tax brackets in the Dutch tax system and the percentage of tax you pay depends on your earnings per year.
If you have a yearly taxable income of up to 19.981 euros, then you fall under the first tax bracket and will pay 36,55 percent in tax. The next bracket concerns those earning 19.982 euros up to 33.790 euros. In this case, the tax applied is 40,8 percent.
In bracket three, the same tax, 40,8 percent, is applied to earnings of up to 67.071 euros. Those earning above 67.071 euros fall under the last tax bracket and pay 52 percent of their salary in tax to the Dutch tax office.
Proposed Dutch tax system
The incoming Dutch government wants to move to a system with only two tax brackets instead of four. In the proposed tax system, the first three tax brackets will merge into one, and those earning up to 68.000 euros will be taxed 37 percent. Those earning above this amount will be taxed 49,5 percent.
The new system is especially beneficial for middle to high-income earners, as those on a middle-income can profit from lower tax rates for longer, and high-income earners see a reduced tax rate.
Employers also see an advantage to the proposed system, as employees with a higher income are less likely to ask for a raise.
Realising a two-bracket system
In order to realise such a tax system, the Dutch government is looking at increasing value-added tax (BTW) to cover a net decrease in tax of five billion euros. This will mean a price increase for groceries and energy bills, but how much is yet to be disclosed.
Other measures, such as cuts to tax deductions for mortgages in the Netherlands, are yet to be decided upon.