Cabinet considering education cuts, tax increases for many to keep social security
The Cabinet has removed cuts to social security from its budget ahead of a two-day parliamentary debate on next year’s finances. To pay for that, many more people will be subject to Box 3 tax, which the government hopes to reform in 2028. A €1.2 billion cut from the education budget is also on the table as a last resort, NOS reported, based on a document in its possession showing an agreement between coalition parties D66, VVD, and CDA.
On Tuesday, the government announced that it has removed social security cuts from the budget pending talks with the trade unions on reforming the disability benefit WIA. But these talks must result in savings on benefit payments, Prime Minister Rob Jetten and Finance Minister Eelco Heinen stressed. “Should the savings fall short of expectations, the Cabinet will put forward additional proposals,” Jetten said.
The Cabinet is currently facing a €3 billion shortfall. The document in NOS’s possession shows that one of the fallback measures the Cabinet is considering for covering this amount is a reduction in the price adjustment mechanism across several Ministries. That means that their budgets will not keep pace with inflation in the coming years, leaving them with less money to spend and forcing cuts.
The document shows that the Ministries of Defense and Justice and Security would be spared from price adjustments. And the Ministry of Foreign Affairs would be hardly affected. But the Ministry of Education, Culture, and Science would be hit hard. This Ministry faces a €1.2 billion cut from 2031, out of a total budget of €57 billion.
On Tuesday, Jetten and Heinen also announced that the Cabinet intends to adjust the Box 3 tax as early as 2028, so that savings and investments are taxed on distributed gains, rather than paper gains, ANP reported. More people will also be subject to this tax. The tax-free asset allowance will drop from approximately €60,000 to just over €30,000.
Funding for the Box 3 reform will be secured by temporarily lowering the tax rate in Box 2, which covers income from substantial shareholdings, starting next year. The Cabinet hopes that this measure will encourage business owners to withdraw more profit from their companies. The government is also planning to further restrict the ability to borrow from one’s own private limited company, reducing the limit from €500,000 to €100,000 over the coming years.
To boost purchasing power, the Cabinet is scaling back the increase in the earned income tax credit and raising the income threshold for the top tax bracket.
The government hopes that these changes will garner support for its budget from both left-wing and right-wing parties in parliament. The Tweede Kamer, the lower house of the Dutch parliament, will debate the financial plans today and tomorrow.