Differences in tax credits lead to unequal treatment of families. The net family income of a single-earner household is significantly lower than that of a dual-earner household.
General tax credit
The general tax credit is a reduction in income tax and social security contributions. Everyone is entitled to the general tax credit. The amount of the general tax credit decreases as income rises.
Someone who earns little or nothing does not pay income tax and is therefore unable to claim the tax credit. If this person has a partner who is eligible to claim the allowance, the allowance is paid to the partner on the lowest income. This is sometimes disparagingly referred to as a ‘kitchen subsidy’.
The plan is to stop paying the tax credit to the lowest-earners by 2024. The amount payable has therefore been gradually reduced since 2009. For 2017, the general tax credit amounts to € 2.254. In 2017, the lower-earning partner will receive a maximum of 40% of this (in other words: € 902) paid out.
The idea behind phasing out the tax credit is to encourage people to work. This should boost the economy, whilst also ensuring that the government spends less and less on benefits.
Unequal treatment
The easiest way to explain the difference is by using an example.
In family A, both tax partners work. They each receive a gross annual salary of €20,000.
After deduction of the general tax credit and the working tax credit, they will each pay €1,861 in income tax in 2017.
Their household income after tax is: € 36.278.
In household B, one partner works. The working partner receives a gross annual salary of €40,000. The other partner has no income.
After deduction of the general tax credit and the working tax credit, the working partner will pay €11,202 in income tax in 2017. The non-working partner will receive the general tax credit: €902.
The family’s after-tax income is € 29.700.
That is considerably less than Family A’s income. The household income would increase significantly if the lowest-earner were to start earning an income from work.
Encouraging labour market participation
It is not only the phasing out of the “household allowance” that is intended to encourage people to take up work. There is also the means-tested combination allowance. The partner on the lowest income is eligible for this if:
- he or she earns a gross annual income of €4,895 or more from paid work and;
- has a child under the age of 12 who has been registered at the same residential address for at least six months.
The combined discount depends on the level of income. If the income exceeds €33,065, the combined discount is: € 2.778.
If Family A’s household includes a child under the age of 12, the younger of the two partners is entitled to an income-related combination allowance of €1,973. The family’s after-tax income then rises to € 38.251.
Even though Family B has a child under the age of 12, it is not entitled to the means-tested combination allowance. The difference between the incomes of the two families therefore widens further.
However, if the lower-earning partner in household B were to take up employment and receive a gross annual salary of €4,895, they would be entitled to an income-related combination allowance amounting to € 1.043.
Different times
For some time now, the world – including the Netherlands – has been changing. Whereas previously, in a family, only the man worked whilst the woman looked after the household and the children, women are now going to university, fewer children are being born, and women are entering the workforce. The traditional breadwinner family is much less common. For this reason, the “housewife’s allowance” is no longer in keeping with the times.
Political parties such as the SGP and ChristenUnie oppose the abolition of the tax credit for single-earner households. Instead, they are calling for additional support for families with a single breadwinner. Other political parties see the abolition as a means of encouraging people to work. In that case, a “kitchen-sink subsidy” is not desirable. Tax credits are also likely to be a key issue in the elections.