It is not often that the prices for gas and electricity rise so fast. At the end of last year, the cabinet therefore exceptionally pulled out all the stops to give households this year a discount on the energy bill of around 400 euros per household. People with the lowest incomes can receive an additional 200 euros through the municipality.
Miscalculation
A small miscalculation, because the energy bill goes up much faster. With today’s prices, a household with an average consumption will be more than 1200 euros more expensive this year, the Central Bureau of Statistics has calculated. Only people with a permanent contract are not bothered by this.
There is a growing realization in the cabinet that something extra needs to be done. But for whom and what, they are not yet sure. According to Deputy Prime Minister and Minister of Finance Kaag, there are ‘few knobs to turn’ if it turns out that people are being hit hard in the wallet. It is also not usual to take measures to support purchasing power during the year.
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Spring forecast
On 9 March, the Central Planning Bureau will issue a new estimate of the economic picture for this year and next. It will then also become clearer what exactly the more expensive groceries and rising energy prices mean for purchasing power. The government wants to wait for that.
“It will be a lot easier for next year to adjust purchasing power,” says political reporter Roel Schreinemachers. “If the purchasing power picture does not look good, the cabinet can, for example, lower the tax rates. Or it can increase the tax-free rate, the part of your income on which you do not pay tax. That is a lot more difficult for the current year.”
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Exceptional times
Nevertheless, exceptional times with historically high inflation call for exceptional measures. “The cabinet has already hinted that there may be additional compensation for people with a low income for whom the blow is the greatest,” continues Schreinemachers. “But it is certainly not excluded that the cabinet will also do something extra for middle incomes if the purchasing power pictures in April look very bad.”
A simple solution is possible for the lowest incomes. The cabinet can give municipalities more money so that they can give residents who desperately need it an extra allowance for their energy bills. If you also want to do something for other groups, it’s more complicated.
Setting the VAT on the energy bill to zero – as PVV leader Geert Wilders suggested – is easier said than done. Not levying VAT at all is met with objections from Brussels. The cabinet can accommodate energy under the low VAT rate of 9 percent. Belgium has done something similar with the VAT on electricity. “A purchasing power booster”, according to the Belgian government.
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More setbacks
“If you really want it, there are always other forms of compensation you can think of,” continues Schreinemachers. “At the end of last year, it was only decided at the last minute to reduce the tax on the energy bill, to give households some relief. But the cabinet is hesitant to make promises, because compensation can quickly run into billions of euros.”
That is why the government first wants to see how much it is needed. Not everyone immediately gets into financial trouble if the energy bill rises or the daily groceries become more expensive. Compensation for everyone is not an option, Kaag constantly emphasizes. Plus, there are a few other hefty setbacks that need fixing.
savings tax
At the end of last year, the Supreme Court canceled the savings tax in its current form. Tax may only be levied on the actual return. Compensation of duped savers is going to be very expensive. And the cabinet is still thinking about what to do with hundreds of thousands of citizens who were wrongly blacklisted by the tax authorities.
“The cabinet already spends a lot and does not want to let the budget deficit continue to rise. That means that not everything is possible,” says Schreinemachers. The VVD has even suggested spending cuts if necessary. “It’s a complicated puzzle to be put together in April. It promises to be the first serious test for the new coalition.”
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