Netherlands Raises Minimum Wage by 10% to Address Cost of Living Crisis

Reducing Income Tax and Raising Corporate Tax to 19%... 'Windfall Tax' for Energy Companies

Mark Rutte, Prime Minister of the Netherlands
Photo by Reuters Yonhap News

[Asia Economy Reporter Park Byung-hee] The Dutch government has decided to raise the minimum wage by 10% starting January 1 next year. This is part of measures to alleviate the burden on low-income households caused by the sharp rise in gas and electricity prices. As energy prices across Europe surged rapidly due to Russia's gas supply cut-off, several European countries including Germany, France, Italy, and Spain announced plans to increase their minimum wages, with the Netherlands having the highest rate of increase. Currently, the minimum wage in the Netherlands is 1,756 euros per month (approximately 2.43 million KRW).

According to major foreign media on the 20th (local time), the Dutch government announced a 18 billion euro household support package, which includes the minimum wage increase plan.

The support measures include freezing gas and electricity fees for low-income households next year. The exemption period for transport fuel taxes will also be extended until July next year. The government's fiscal burden due to the extension of the transport fuel tax exemption is expected to be about 1.2 billion euros.

The Dutch government will also increase social welfare payments such as childcare allowances and pensions, while reducing income tax. On the other hand, the corporate tax rate will be raised from 15% to 19%. Additionally, a windfall tax will be imposed on oil and gas companies. The government reached an agreement with the energy industry on the windfall tax the previous night.

Currently, discussions on imposing a windfall tax and setting an energy price cap are underway at the European Union (EU) level, and the Dutch government is expected to impose the windfall tax in accordance with the EU's decision.

Last week, the European Commission announced plans to raise 140 billion euros through the windfall tax. The Dutch government expects to secure an additional 2.8 billion euros in tax revenue over the next two years from the windfall tax.

The Dutch government also estimated that increasing gas extraction from the Groningen gas field, the largest gas field in Europe, and developing other energy resources could generate about 8.5 billion euros in revenue.

Sigrid Kaag, Dutch Minister of Finance, stated that some budgets allocated for other purposes will be redirected to household support budgets, and that plans to hire additional teachers will be delayed.

Bloomberg assessed that traditionally the Netherlands has taken a cautious approach to fiscal spending, but this time announced a large-scale expansionary fiscal policy. This suggests that the Dutch government considered the significant impact of rising energy prices on the Dutch economy.

Due to rising energy prices, the purchasing power of the Dutch people has decreased at the largest rate ever. The Netherlands Bureau for Economic Policy Analysis warned that up to one million people could fall into poverty due to the rise in energy prices. The bureau analyzed that the government's measures could increase the purchasing power of median-income households by more than 3% next year.

Frank van Es, senior economist at Rabobank, pointed out that "the household support measures could increase inflationary pressures." He added, "It is a very expansionary fiscal spending that stimulates inflation," and described it as "an overcompensation for the energy price shock."

The Dutch government stated that the fiscal deficit ratio relative to GDP next year can be kept at 3%, exactly within the EU's fiscal rule limit. It also expects the debt-to-GDP ratio to fall to 49.5% due to inflation.

The Dutch government forecasted an economic growth rate of 1.5% and an inflation rate of 2.6% for next year. However, Rabobank predicted an economic growth rate of 0.2% and an inflation rate of 5%. The consumer price inflation rate in the Netherlands in August recorded 12%.

This content was produced with the assistance of AI translation services.