
Tax and Benefit Policies to Reduce Poverty in the Netherlands: A Microsimulation Analysis
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Net effective marginal income tax rates in the Netherlands in 2022.. Note: Figure 1 shows the average net effective marginal income tax rates (solid line) and the corresponding 5th and 95th percentiles (dotted lines), all expressed as percentages, for gross individual incomes between € 0 and € 150,000.Sources: CPB calculations based on the MIMOSI microsimulation model.
Tables
Stylized overview of the Dutch system of taxes and benefits
Gross wages | + |
Gross profits | + |
Gross benefits | + |
Gross pensions | + |
(Assumed) gross income derived from wealth* | + |
(Assumed) income derived from home ownership† | + |
Gross income | |
Taxes | - |
Income tax credits | + |
Fiscal effect of tax deductions | + |
Net income | |
Allowances | + |
Various individual allowances and compensation schemes | + |
Disposable income |
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*
Income derived from financial wealth is not taxed directly. Instead, the tax authority makes assumptions about the amount of income derived from the total amount of net household wealth.
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†
Home ownership is taxed indirectly by assuming that one derives income from owning a home (‘eigenwoningforfait’).
The basic needs and modest-but-adequate budgets for a single person in 2017 (monthly amounts in euro)
Minimum necessities | Additional expenses for social participation and recreation | ||
---|---|---|---|
Rent* | 443 | Additional contributions and subscriptions | 18.5 |
Gas | 60 | Receive visitors | 19.5 |
Electricity | 20 | To visit family and friends | 5.5 |
Water | 9 | Holiday/going out | 39 |
Telephone, television and internet | 54 | Additional transportation | 13.5 |
Insurance† | 45 | ||
Contributions and subscriptions | 2 | ||
Transportation | 14 | ||
Clothing and shoes | 56 | ||
Inventory | 74 | ||
Maintenance home and garden | 24 | ||
Food | 201 | ||
Laundry and cleaning supplies | 6 | ||
Personal care | 21 | ||
Miscellaneous | 10 | ||
Total minimum necessities | 1039 | Total social participation and recreation | 96 |
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Source: Vrooman et al. (2020).
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*
This amount is obtained by estimating the average rent of a reference home.
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†
Mandatory health insurance is excluded because its costs are deducted from income.
Planned policies of previous and current governments
1: The lower threshold of the higher bracket of the Box 1 income tax will be raised from 2025 onwards. 2: The minimum income benefit is gradually reduced because the double tax credit that is applied to the reference minimum wage – this is the net amount a couple would end up with in the hypothetical case that one of them would receive a gross benefit equal to the statutory gross minimum wage, while the other would have no income - on which the minimum income benefit is based is gradually phased out. 3: The transferability of the general tax credit, the in-work tax credit, and the in-work tax credit for single parents and second earners in couples with children will be abolished. 4: The imputed income from homeownership will be reduced by 0.05%. 5: The deduction for zero (or very low) home acquisition debt (‘wet Hillen’) will be abolished. 6: The reduction percentage of the health care allowance will be further increased. 7: The lower threshold of the second bracket of the Box 1 income tax for pensioners will be indexed to a limited extent (75%) for people born after 1945. 8: The pension agreement of 2020 will lead to a 0.3% reduction in pensions by 2060 (after 2060 it will further lower pensions but this period is excluded from our analysis). 9: The tax credit for the self-employed will not be indexed. 10: The maximum rate for tax deductions will be further reduced to the lower tariff in the two-bracket system of income tax over the period until 2023. 11: The mortgage redemption requirement to be eligible for mortgage interest deduction will be gradually increased over the period until 2042. |
Simulated effects of various individual policy options§
Policy options | Ex-ante budgetary effect € bn | Poverty in persons % | Poverty in euros % | Poverty in persons (within group) % | Poverty in euros (within group) % | Employment % | Income inequality % |
---|---|---|---|---|---|---|---|
I. Policies aimed at children | |||||||
1: Raise child budget from third child onwards 2: Raise child budget for single parents 3: Raise child budget, combination of 1 and 2 4: Make in−work tax credit for second earners/single parents refundable | −0.2 −0.1 −0.3 −0.1 | −2.5 −0.9 −3.5 −0.1 | −1.1 −0.4 −1.5 −0.1 | −7.2 −2.3 −9.9 −0.3 | −3.4 −1.3 −4.6 −0.2 | 0.0 0.0 0.0 0.0 | −0.1 −0.1 −0.1 0.0 |
II. Policies aimed at the working age population | |||||||
5: Make in−work tax credit refundable 6: Raise in−work tax credit for low incomes 7: In−work tax credit, combination of 5 and 6 8: Raise minimum income benefit to state pension level 9: Reverse reduction in minimum income benefit after 2021 10: Raise minimum income benefit to 70% of reference minimum wage per hh member | −0.3 −1.2 −2.5 −1.4 (−2.9*) −0.9 (−1.9*) −1.8 (−3.7*) | −0.8 −3.1 −6.3 −20.0 −16.7 −10.7 | −0.8 −1.7 −4.7 −8.8 −7.3 −4.3 | −1.1† −8.8† −14.0† −57.0† −48.0† −27.3† | −1.1† −4.5† −9.3† −57.1† −48.3† −21.3† | 0.0 −0.1‡ −0.2‡ −0.9‡ −0.6‡ −1.2‡ | −0.1 −0.4 −0.7 −0.9 −0.6 −0.5 |
III. Policies aimed at the elderly | |||||||
11: Make tax credit for retirees refundable 12: Raise healthcare allowance for the elderly only by € 0.3 bn 13: Raise the tax deductibility of healthcare costs for the elderly only by € 0.3 bn | −0.8 −0.3 −0.3 | −1.7 −0.4 −0.2 | −2.2 −0.5 −0.1 | −10.0 −2.8 −1.6 | −14.6 −4.0 −1.1 | . . . | −0.4 −0.2 −0.1 |
IV. General policies | |||||||
14: Make general tax credit refundable 15: Make general tax credit refundable and raise it by € 0.5 bn 16: Raise the tax deductibility of healthcare costs by € 0.3 bn | −4.8 −5.5 −0.3 | −16.0 −17.5 −0.9 | −19.1 −20.1 −0.5 | . . . | . . . | −0.8‡ −0.8‡ . | −1.1 −1.3 −0.1 |
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Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.
-
*
The amounts between brackets show the total ex-ante effect when taking into account behavioural responses.
-
†
For the policies 5 to 10, the relevant group corresponds to a subcategory of the working age population, in particular workers (policies 5 to 7) or recipients of minimum income benefit (policies 8 to 10).
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‡
Negative employment effects have an (unquantified) upward effect on poverty.
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§
Table A1 in the appendix presents the results for the AROP threshold.
Simulated effects of selected individual policy options with an imposed budgetary impact of € 1.0 bn§
Policy options | Ex-ante budgetary effect € bn | Poverty in persons % | Poverty in euros % | Poverty in persons (within group) % | Poverty in euros (within group) % | Employment % | Income inequality % |
---|---|---|---|---|---|---|---|
I. Policies aimed at children | |||||||
1: Raise child budget from third child onwards and further increase it for each child 2: Raise child allowance | −1.0 −1.0 | −7.3 −4.2 | −3.3 −2.1 | −19.8 −10.9 | −10.2 −6.4 | −0.2‡ −0.1‡ | −0.4 −0.2 |
II. Policies aimed at the working age population | |||||||
3: Raise in−work tax credit 4: Raise minimum income benefit | −1.0 −1.0 (−2.0*) | −0.6 −17.9 | −0.2 −7.9 | −1.9† −55.7† | −0.7† −55.9† | 0.1 −0.7‡ | 0.0 −0.7 |
III. Policies aimed at the elderly | |||||||
5: Make tax credit for retirees refundable and raise it 6: Raise healthcare allowance for the elderly only | −1.0 −1.0 | −1.8 −1.9 | −2.4 −2.0 | −10.9 −15.3 | −16.0 −14.5 | . . | −0.5 −0.9 |
IV. General policies | |||||||
7: Raise rent allowance 8: Raise healthcare allowance 9: Raise general tax credit | −1.0 −1.0 −1.0 | −11.2 −5.6 −2.0 | −7.8 −4.7 −1.3 | . . . | . . . | −0.1‡ −0.1‡ 0.0 | −1.1 −0.7 −0.3 |
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Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.
-
*
The amount between brackets shows the total ex-ante effect when taking into account behavioural responses.
-
†
For the policies 3 and 4, the relevant group corresponds to a subcategory of the working age population, in particular workers (policy 3) or recipients of minimum income benefit (policy 4).
-
‡
Negative employment effects have an (unquantified) upward effect on poverty.
-
§
Table A2 in the appendix presents the result for the AROP threshold.
Basic income scenarios
Baseline | Scenario 1 | Scenario 2 | |
---|---|---|---|
UBI | Euros per month | ||
Per adult | 0 | 560 | 635 |
Per household | 0 | 500 | 600 |
Total single adult household | 0 | 1060 | 1235 |
Total per adult in a couple | 0 | 810 | 935 |
UBI | Euros per year | ||
Total single adult household | 0 | 12,722 | 14,822 |
Total per adult in a couple | 0 | 9,722 | 11,222 |
Benefits | |||
Minimum income scheme (‘bijstand’) | maintained | abolished | abolished |
Disability benefits for young people (‘Wajong’) | maintained | abolished | abolished |
Public pension (‘AOW’) and benefits for widows/widowers (‘Anw’) | maintained | netted with UBI | abolished |
Unemployment and disability benefits (‘WW’, ‘ZW’ and ‘WIA’) | maintained | netted with UBI | netted with UBI |
Taxes, tax deductions and tax credits | |||
Tariff first bracket Box 1 | 37.1% | 52.7% | 56.5% |
Tariff second bracket Box 1 | 49.5% | 70.4% | 75.4% |
Income tax credits | maintained | abolished | abolished |
Tax on imputed income from homeownership (‘eigenwoningforfait’) | maintained | abolished | abolished |
Mortgage interest rate tax deduction (‘hypotheekrenteaftrek’) | maintained | abolished | abolished |
Allowances | |||
Rent allowance (‘huurtoeslag’) | maintained | maintained | maintained |
Child allowance (‘kinderbijslag’) | maintained | maintained | increased to 300 euros per child per month |
Child budget (‘kindgebonden budget’) | maintained | maintained | abolished |
Child care allowance (‘kinderopvangtoeslag’) | maintained | maintained | abolished |
Healthcare allowance (‘zorgtoeslag’) | maintained | maintained | abolished |
Study subsidies (‘studiefinanciering’) | maintained | abolished | abolished |
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Note: Due to rounding, the annual UBI amounts do not exactly correspond to 12 times the monthly amount.
Simulated effects of larger reforms†
Poverty in persons | Poverty in euros | Employment | Income inequality | |
---|---|---|---|---|
% | % | % | % | |
Universal Basic Income | ||||
Scenario 1 | −45.3 | −62.4 | −6.4* | −10.0 |
Scenario 2 | −60.5 | −62.3 | −8.3* | −11.7 |
Negative income tax | −14.8 | −19.3 | −0.9* | −2.1 |
Unified allowance | 11.0 | 13.1 | 0.6 | −0.7 |
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Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.
-
*
Negative employment effects have an (unquantified) upward effect on poverty.
-
†
Table A3 in the appendix presents the result for the AROP threshold.
Boxplots of the percentage change in household disposable income for different household groups in UBI scenario 1
Distribution of effect on disposable income | |||||
---|---|---|---|---|---|
5% | 25% | 50% (median effect) | 75% | 95% | |
% change | |||||
All households | −18.4 | −8.3 | −1.5 | 7.2 | 31.4 |
Income percentiles | |||||
1-20% | −19.2 | −12.5 | 7 | 18.5 | 51.7 |
21-40% | −8.9 | −3.4 | 3.1 | 9 | 33.6 |
40-60% | −12.2 | −4.1 | 0 | 4.3 | 25 |
61-80% | −15.5 | −8.5 | −4.4 | 1.7 | 19.9 |
81-100% | −22.4 | −12.9 | −8.1 | −1 | 12.5 |
Income source | |||||
Employment | −16.4 | −7.6 | −0.4 | 8.8 | 31.4 |
Benefits | −29.9 | −5.9 | 6.4 | 10.5 | 36 |
Pension | −19.1 | −10.9 | −4.7 | 0.7 | 25.3 |
Household type | |||||
Dual earners | −18.1 | −9.5 | −5 | 1.5 | 22.4 |
Single earners | −18.8 | −6.1 | 1.6 | 8.5 | 31.8 |
Single-earner couples | −5.2 | 11 | 20.2 | 32.6 | 61.1 |
With/without children | |||||
With children | −19.2 | −11.3 | −4.9 | 6.7 | 30 |
Without children | −15.8 | −5.6 | 1.5 | 10 | 33.5 |
Boxplots of the percentage change in household disposable income for different household groups in UBI scenario 2
Distribution of effect on disposable income | |||||
---|---|---|---|---|---|
5% | 25% | 50% (median effect) | 75% | 95% | |
% change | |||||
All households | −19.6 | −9.3 | −1.9 | 9.7 | 33.4 |
Income percentiles | |||||
1−20% | −14.8 | −10.6 | 8.6 | 19.6 | 54.3 |
21−40% | −14.2 | −6.9 | 1.9 | 10.7 | 35 |
40−60% | −14.5 | −5.8 | 0.4 | 6 | 29.4 |
61−80% | −18.6 | −8.5 | −3.8 | 4.4 | 23.9 |
81−100% | −27.5 | −14.5 | −8.5 | 0 | 14.8 |
Income source | |||||
Employment | −20.5 | −7.2 | 1 | 11 | 34.6 |
Benefits | −30.2 | −4.7 | 10.7 | 15 | 41.6 |
Pension | −16.1 | −11.6 | −8.1 | −3.3 | 21.2 |
Household type | |||||
Dual earners | −22 | −10.2 | −5 | 3.7 | 25.4 |
Single earners | −16.5 | −8.6 | 0.5 | 11 | 33.7 |
Single−earner couples | −5.9 | 13.6 | 23.8 | 33.4 | 64.3 |
With/without children | |||||
With children | −27.6 | −11.3 | −2.1 | 10.1 | 35.4 |
Without children | −17.1 | −5.8 | 3 | 12.4 | 35.9 |
Boxplots of the percentage change in household disposable income for different household groups in the negative income tax scenario
Distribution of effect on disposable income | |||||
---|---|---|---|---|---|
5% | 25% | 50% (median effect) | 75% | 95% | |
% change | |||||
All households | −2.1 | −1.7 | −1.5 | 0.4 | 7.5 |
Income percentiles | |||||
1−20% | −1.6 | −1.5 | −1.2 | 0.7 | 12.8 |
21−40% | −1.8 | −1.6 | −1.4 | 1.5 | 8.9 |
40−60% | −2 | −1.7 | −1.5 | 0.5 | 6.9 |
61−80% | −2.1 | −1.8 | −1.6 | −0.1 | 5 |
81−100% | −2.6 | −2 | −1.8 | −0.5 | 2.9 |
Income source | |||||
Employment | −2.2 | −1.8 | −1.5 | −0.4 | 7.1 |
Benefits | −2.1 | −1.6 | −1.5 | −1 | 11 |
Pension | −1.9 | −1.5 | −1.2 | 1.1 | 7.3 |
Household type | |||||
Dual earners | −2.2 | −1.8 | −1.4 | 1.1 | 6.5 |
Single earners | −2.1 | −1.8 | −1.5 | −1.2 | 3.7 |
Single-earner couples | 1 | 3.8 | 6.4 | 9.6 | 17.1 |
With/without children | |||||
With children | −2.2 | −1.6 | −0.9 | 2.9 | 9.8 |
Without children | −2.2 | −1.8 | −1.6 | −1.3 | 5.8 |
Boxplots of the percentage change in household disposable income for different household groups in the unified allowance scenario
Distribution of effect on disposable income | |||||
---|---|---|---|---|---|
5% | 25% | 50% (median effect) | 75% | 95% | |
% change | |||||
All households | −5.5 | −0.4 | −0.1 | −0.1 | 9.2 |
Income percentiles | |||||
1−20% | −14.3 | −4.1 | −0.3 | 4 | 13.4 |
21−40% | −3.6 | −1 | −0.1 | 6.9 | 10.9 |
40−60% | −4 | −0.1 | −0.1 | −0.1 | 4.8 |
61−80% | −2.4 | −0.2 | −0.1 | −0.1 | −0.1 |
81−100% | −0.5 | −0.2 | −0.1 | −0.1 | −0.1 |
Income source | |||||
Employment | −3.9 | −0.2 | −0.1 | −0.1 | 8.3 |
Benefits | −15.9 | −5.2 | −0.3 | 1.4 | 9.9 |
Pension | −5.1 | −0.4 | −0.1 | 2.8 | 10.1 |
Household type | |||||
Dual earners | −3.3 | −0.2 | −0.1 | −0.1 | 3.3 |
Single earners | −8.3 | −0.5 | −0.1 | 4.3 | 11.3 |
Single−earner couples | −5.8 | −1.5 | −0.1 | −0.1 | 5.9 |
With/without children | |||||
With children | −6.8 | −2.2 | −0.2 | −0.1 | 1.6 |
Without children | −4.3 | −0.2 | −0.1 | −0.1 | 9.7 |
Simulated effects of various individual policy options, poverty threshold equals 60% of median net disposable income
Policy options | Poverty in persons % | Poverty in euros % | Poverty in persons (within group) % | Poverty in euros (within group) % |
---|---|---|---|---|
I. Policies aimed at children | ||||
1: Raise child budget from third child onwards | −1.3 | −1.0 | −3.7 | −3.2 |
2: Raise child budget for single parents | −0.5 | −0.5 | −1.2 | −1.7 |
3: Raise child budget, combination of 1 and 2 | −1.9 | −1.6 | −5.1 | −4.9 |
4: Make in−work tax credit for second earners/single parents refundable | −0.1 | −0.1 | −0.4 | −0.2 |
II. Policies aimed at the working age population | ||||
5: Make in−work tax credit refundable | −0.6 | −0.7 | −0.8* | −0.9* |
6: Raise in−work tax credit for low incomes | −3.0 | −2.4 | −7.7* | −7.0* |
7: In−work tax credit, combination of 5 and 6 | −5.4 | −5.1 | −11.8* | −11.4* |
8: Raise minimum income benefit to state pension level | −4.6 | −11.0 | −9.9* | −44.2* |
9: Reverse reduction in minimum income benefit after 2021 | −2.3 | −7.7 | −5.2* | −30.6* |
10: Raise minimum income benefit to 70% of reference minimum wage per hh member | −7.9 | −5.2 | −24.0* | −18.8* |
III. Policies aimed at the elderly | ||||
11: Make tax credit for retirees refundable | −2.0 | −2.1 | −12.4 | −12.8 |
12: Raise healthcare allowance for the elderly only by € 0.3 bn | −1.0 | −0.6 | −6.6 | −4.5 |
13: Raise the tax deductibility of healthcare costs for the elderly only by € 0.3 bn | −0.4 | −0.2 | −2.8 | −1.6 |
IV. General policies | ||||
14: Make general tax credit refundable | −13.7 | −16.3 | . | . |
15: Make general tax credit refundable and raise it by € 0.5 bn | −14.5 | −17.3 | . | . |
16: Raise the tax deductibility of healthcare costs by € 0.3 bn | −0.5 | −0.5 | . | . |
-
Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.
-
*
For the policies 5 to 10, the relevant group corresponds to a subcategory of the working age population, in particular workers (policies 5 to 7) or recipients of minimum income benefit (policies 8 to 10).
Simulated effects of selected individual policy options with an imposed budgetary impact of € 1.0 bn, poverty threshold equals 60% of median net disposable income
Policy options | Poverty in persons % | Poverty in euros % | Poverty in persons (within group) % | Poverty in euros (within group) % |
---|---|---|---|---|
I. Policies aimed at children | ||||
1: Raise child budget from third child onwards and further increase it for each child | −4.1 | −3.5 | −9.8 | −11.1 |
2: Raise child allowance | −1.3 | −1.1 | −2.9 | −3.5 |
II. Policies aimed at the working age population | ||||
3: Raise in−work tax credit | −0.4 | −0.3 | −1.3* | −1.0* |
4: Raise minimum income benefit | −6.9 | −4.4 | −13.8* | −10.1* |
III. Policies aimed at the elderly | ||||
5: Make tax credit for retirees refundable and raise it | −2.4 | −2.3 | −14.4 | −14.2 |
6: Raise healthcare allowance for the elderly only | −2.8 | −2.3 | −18.3 | −16.0 |
IV. General policies | ||||
7: Raise rent allowance | −5.3 | −7.9 | . | . |
8: Raise healthcare allowance | −3.5 | −4.4 | . | . |
9: Raise general tax credit | −1.4 | −1.4 | . | . |
-
Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.
-
*
For the policies 3 and 4, the relevant group corresponds to a subcategory of the working age population, in particular workers (policy 3) or recipients of minimum income benefit (policy 4).
Simulated effects of larger reforms, poverty threshold equals 60% of median net disposable income
Poverty in persons | Poverty in euros | |
---|---|---|
% | % | |
Universal Basic Income | ||
Scenario 1 | −28.3 | −48.4 |
Scenario 2 | −26.1 | −52.9 |
Negative income tax | −14.1 | −16.1 |
Unified allowance | 5.1 | 10.4 |
-
Note: The reported effects document the changes relative to the structural baseline scenario (counterfactual), which assumes that all policies currently being gradually phased in are fully implemented but no additional policy changes occur.