Written by By Lorre Luther
The first paycheck of 2018 brought welcome news for most employees in the Netherlands— more take home pay. The amount of money that will be deposited into affected employees’ bank accounts this year will increase even if their gross wages remain the same. This paycheck enlargement is not evenly distributed across income bands, earning groups, and sectors of the economy. Higher earners retain more gross income and those dependant on supplementary pensions saw less cash.
The amount of money involved for all impacted individual earners is limited, according to data studied by ADP, a payroll processor. The average minimum wage or median earner will keep an extra 7 Euros per month from their gross pay. This rises to around 16 Euros for employees earning two times the median wage. The change mostly involves the results of indexed tax credits and an upward shift of the point at which the highest tax bracket begins. In 2017, Dutch tax law mandated individuals pay a 52 percent tax on gross income over 67,000 Euros. In 2018, those numbers shifted. Now the fourth tax bracket begins at 68,500 Euros and the corresponding tax rate has been reduced to 51.95 percent. Expansions in general tax credits and those available to workers explain the remainder of the adjustments.
ADP also evaluated the the impact of the modifications on specific sectors of the economy. Part-time and younger workers lose under the new rules. These tend to be employees who can’t take advantage of employment tax credits. Individuals earning gross incomes of 1,000 to 1,500 Euros per month specifically suffer financially. They can request compensation from the Tax and Customs Administration when filing taxes. Former civil servants also come out behind. A retired civil servant earning two times the median in gross income from pension benefits still ends up with 1 Euro less in the bank every month. Rising pension premiums negate the benefit for highly compensated civil servants. A monthly pension premium increase of 18 Euros more than offsets the 17 Euros of tax savings.
Construction workers earning the minimum wage still end up with 12 extra Euros of take home pay per month. The minimum wage for this group is 1,456 Euros per month. The average increase for minimum wage workers for that same period of time is 7 Euros. This number comes to 8 Euros for minimum wage workers in the health care industry. Currently working civil servants earning the minimum of 1,578 Euros will see an increase of 6 Euros. For metal and technical workers this number corresponds to 5 Euros. The difference comes from the way in which the construction industry compensates travel, vacation, and overtime payments. The changes have the greatest negative impact on those receiving supplementary pensions. Supplementary pensions provide retirement income for self-employed workers or those who worked for businesses or industries that did not provide pensions. For this group, more gross income results in more taxes. An individual receiving a supplementary pension of 2,750 Euros will have 7 fewer Euros deposited into the bank each month. This derives mostly from larger payments required by the Healthcare Insurance Act. Increased AOW benefits, however, limit the impact of these changes.
In 2018, AOW payments rise 8 Euros for couples and 12.50 Euros for those without domestic partners. The 2017 elections played played a role in the windfall. The Rutte II government did not place significant emphasis on tax policy reform before the Dutch elections of March 15, 2017. The new Rutte III government was not formed until late in October 2017—too late in the year to change the rules for 2018.