The coalition talks about purchasing power, which buttons can the cabinet turn?

An energy bill that goes over three times compared to last year and groceries in the supermarket for which you lose about 20 percent more; inflation has not been that high since 1975. Dutch people with low incomes, but also with middle incomes, are increasingly struggling to make ends meet.

And so the government is being looked at: what can the cabinet do to make the consequences of the upcoming โ€œpurchasing power massacreโ€, as sources in The Hague call it, more bearable? That is the most important question that the coalition has to answer at the moment. They dont have much time for that: on August 26, the budget for next year should be ready. Today, the coalition parties sat together for a first informal consultation, next week the Central Planning Bureau will present important figures on purchasing power.

In times of economic prosperity, coalition parties can make some small interventions in the run-up to Prinsjesdag to make the purchasing power pictures appear as favorable as possible. A little tax cut here, an extra subsidy scheme there. Now fundamental choices are needed to adjust purchasing power for millions of Dutch people. Such choices are normally only made when negotiations are held for a new coalition.

One of the issues that are being discussed is what the cabinet can do to reduce the energy bill. This is responsible for a large part of the current inflation rate. If you concluded a new average energy contract last year (1200 m3 of gas and 2400 kWh), you would have lost 120 euros per month for that. That is now three times as much.

The utility bill

That is much higher than in other countries. To a large extent, this is because nowhere in Europe is the share of government levies in the energy bill higher. For every euro you pay in gas, for example, 37 cents go to the treasury.

This year, the cabinet already took measures to make the burdens of the energy bill less heavy. For example, a one-off tax discount was set up, which allows an average household to receive 540 euros in compensation. An additional energy surcharge of 1300 euros has been made available for minimums.

The

topic of discussion is whether these measures will be extended or perhaps even extended. Trade union FNV advocated setting a maximum price for energy, as happened in France. Market parties are not in favour of this, because the bill will then lie with them.

Another option is to lower the VAT on energy. The advantage is that it costs relatively little. Because a tax is always a percentage of the price, tax revenues are also higher when the price rises. With a percentage lower tax, the absolute income for the treasury does not have to go down too much.

Income policy

Regular groceries have also become considerably more expensive. There are several buttons that the cabinet can turn on, including general ones for the entire population and measures specifically aimed at low incomes.

A common option is raising the minimum wage. At least, raising the minimum wage faster. In the coalition agreement, it was agreed that the minimum wage should have increased by 7.5 percent by 2025, to 13.18 euros per hour. In June, due to inflation, the cabinet decided that it will already go up by 2.5 percent to 11.94 euros next year. The cabinet may decide to accelerate the increase even further. Opposition parties have been arguing for a minimum wage of 14 euros for some time.

Other options include a generic reduction in VAT and a general tax reduction. Because of the increased prices, VAT revenues are also higher, a VAT reduction can be implemented without costing the treasury too much. The disadvantage is that households with high incomes, which do not necessarily need such a reduction, also benefit. They could also implement the VAT reduction on fruit and vegetables, an intention of the cabinet, earlier. The question is whether the tax authorities can handle that.

The same applies to a general income tax reduction, which is also expensive. For example, a reduction in the tax by 1 percent costs the treasury 4 billion euros. Moreover, for low incomes, that percent does not make much sense to the dike, it is high incomes that benefit.