Budget Day always remains special and especially when it is a budget of a caretaker government that is just getting started.
There are no major political landslides yet, and with some changes during the General Political Debates, it is mostly waiting for the upcoming elections.
Do you have questions about the implications for your own financial affairs such as annuities?
We are of course at your service.
Budget Day 2023
The last budget of the caretaker cabinet was presented on Prince's Day, and the two days of APB (General Political Debates) have shown the usual picture of a cabinet shuffling a bit in the direction of the various political parties.
The big difference, of course, is that this time the election campaigns have begun and everyone wants to raise their profile on their favorite topic.
While the current government is still busy defending what has already been agreed upon, the opposition is thinking mainly about Nov. 22.
This affected the conduct of the APB as the political parties did mostly good business among themselves with the most significant changes being:
the excise tax increase on fuel should be scrapped
the minimum wage must go up
the energy tax must go down
buses and trains must become cheaper
Whether all this will make it to the Upper House, by the way, remains to be seen.
Nevertheless, this is the 2024 budget and, for now, the measures announced are simply policy that we have to deal with.
Therefore, as every year, a brief look at the tax plan for the coming year with an extra focus on the issues that affect personal finances.
Redistribution
What is striking is that the cabinet is once again opting for redistribution: low incomes go up, higher incomes foot this bill together with businesses and entrepreneurs. And that while last year the biggest drop in purchasing power in the last 40 years was poured over us due to high inflation.
That inflation was mainly due to the rise in energy prices and everything that was influenced by that. Therefore, the fact that everyone will be better off next year, in absolute terms, says nothing about purchasing power; a further decline could be just around the corner.
The measures to address poverty are mainly found in the child-related budget that increases and in the rent allowance. The bill for these will be paid by the higher earners who can expect a tax increase. By the way, of course, an increase in the child-related budget also applies to those with higher incomes.
Tax
Not much else changes; the tax brackets remain roughly the same and the tax credits move with inflation.
What does change is the employment tax credit; working people improve slightly, although during the first day of the APB Omtzigt noted that the marginal pressure for modal is very high.
Simply put; if you start earning 10,000 euros more from modal you will only keep 900 net, that has gotten significantly worse under the current government.
So working more hardly pays off. This change does change that. Also, a minimum hourly wage (was minimum monthly wage) has been introduced and that makes quite a difference.
Box 3
Wealthy individuals naturally have special consideration because the standard Box 3 levy has been overturned by the courts. Now it also appears that the proposed levy on actual returns is too complicated to implement and this change is therefore postponed. The result is 400 million less in taxes for now.
Sounds like good news, but the money is simply taken from the same group by raising the Box 3 rate to 34% and taking the indexation out of the exemption. So with current inflation, the tax is increased on balance.
For tax partners in 2024 there is a box 3 exemption of €114,000. If you do not have a tax partner, the exemption is half. In 2024 this is € 57,000. On this part of your capital, therefore, you pay no tax. This tax-free capital will not be increased in 2024 to cover the budgetary loss of postponing a new system in 2027.
About the new system: the idea is that this simple calculation will be replaced in 2027. From then on, there should be a tax on the actual return on assets; presumably there will be a settlement at the time you actually collect the return. Debts will no longer count fully for the calculation in Box 3, and the question is whether losses will become deductible.
Annuity
Better news comes from the retirement-in-private angle. Starting in 2023, many tax deductions will be deductible at the rate of the first bracket to give everyone equal rate relief. These include mortgage interest, spousal support, donations and healthcare expenses. However, annuities, disability insurance and public transportation travel deductions will remain deductible at the high rate.
And very important; starting in 2023, due to the Future Pensions Act (WTP), the tax rules for annuities are changing in a very positive way. This lets you save more tax-deferred annually, with the annual tax allowance (including reserve or catch-up allowance) increasing significantly.
From January 1, 2023, the taxable contribution limit increases from 13.3% to as much as 30% of the contribution base, equal to the contribution limit for employee pensions as of July 1, 2023. In addition, you can deduct annuity contributions up to five years after state pension age, the same as for employee pensions. Previously, this was only until state pension age, so five years will be added. An example is below.
Fiscal year margin and catch-up margin
You can see how the increase in the annual margin will work out next year in this calculation example::
Suppose you have a gross salary of €80,000 and no pension accrual. Under the current scheme, the annual margin is then:
13.3% x (€80,000 -/- €13,646) = €8,825 per year.
Due to the change in the annual allowance, the annual allowance then amounts to:
30% x (€80,000 -/- €13,646) = €19,906 per year
So this means a significantly higher deduction from which you can take a lot of tax advantage. On top of that, you can also make up extra over past years and do more in one year. All in all, this offers much more freedom to shift taxes and make your own retirement arrangements.
Calculating these benefits and the consequences plús the optimal way to use it we can do for you and we would be happy to make an appointment for that.
Entrepreneurship
There is also less good news for entrepreneurs: the self-employment deduction will be further reduced and the announced "minimum profit tax" has been delayed, so the SME exemption will be further reduced. So the belt has to be tightened there.
The gifts, normally handed out during the APB, will be limited because the finance minister announced in advance that everything must come from the current budget. So the question is where to get the coverage for the aforementioned benefits. However, it has been indicated that it should come from a bank tax and an equity tax. What exactly that means no one really knows yet.
Interest rates
Not a Budget Day item but important: there is an end in sight to the rise in interest rates. This is good news for homeowners because it directly affects mortgage rates. The ECB has announced that a further rise is unlikely. For homeowners, that means a decline will be initiated. How big and in what time frame is of course the big question and nothing is definitive as long as inflation remains quite high in the EU.
Point by point
Here is another summary of the main points of the 2024 plans
the rent allowance and child budget go up
benefits and the minimum wage increase equally
the employment tax credit will be €115 higher. People earning around the minimum wage will pay less tax. They will therefore keep more salary
there will be free school meals for children who could use them
people who can't pay the energy bill are getting help. A special fund will pay part of the energy bill for them
people who travel for work can get more travel reimbursement
the tax-free wealth in box 3 is not indexed
the tax rate rises to 34 percent
excise tax on alcohol, smoking tobacco and cigarettes is increased
Improve or eliminate tax schemes, such as in motor vehicle and purchase tax (BPM)
The business succession regime (BOR) is modified but retained
where possible and effective, tax exemptions and reduced rates for use of fossil resources are phased out
the Energy Investment Allowance (EIA), the Environmental Investment Allowance (MIA) and the Discretionary Depreciation of Environmental Investments (Vamil), are all extended by five years through December 31, 2028
