High inflation, higher wages? This is what you keep net when you earn €40,000 to €80,000 and your gross salary increases 2% to 4%

Rising prices erode the purchasing power of savings and make life more expensive for employees. However, the higher inflation has not yet resulted in extreme wage increases in the Netherlands. But that could of course change.

Inflation in the Netherlands is expected to exceed 5 percent last November, partly due to the sharp rise in energy prices. There is much debate among economists about the extent to which high inflation is ‘temporary’. According to economists at ABN AMRO, for example, Dutch collective labor agreements do not yet show a clear increase in wages. Collectively negotiated wages have so far increased by about 2 percent on an annual basis. If you include the incidental wage increases, this is an increase of about 2.5 percent on an annual basis.

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Inflation will probably fall slightly from its current peak level, but if the average price increase remains above 3 percent, for example, then the chance of higher wage demands also increases.

How can that work out in practice? Using this tool from Berekenhet.nl, Business Insider has created a number of scenarios for gross annual wages ranging between 40,000 euros and 80,000 euros.

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What will you be left with if gross wages rise 2% to 4%?

What happens net if the gross salary increases by 2 percent, 3 percent or 4 percent? Various elements are involved in the wage calculation. In the stylized examples below, only three important things have been taken into account.

The first is the payroll tax. For this, the rate for an income of up to 69,398 euros next year is 37.07 percent. Above this amount you pay 49.5 percent tax.

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In addition, two important tax credits are important: the general tax credit and the employed person’s tax credit. This discount is phased out as you earn more, so the tax advantage becomes smaller for higher incomes. If you take these things into account, a gross wage increase for salaries between 40,000 euros and 80,000 euros looks like this, if you look at what happens to the net monthly salary.

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The table above shows that a gross annual salary of 40,000 euros, if you take the payroll tax and tax credits into account, yields a net monthly salary of 2,585 euros. If you increase the gross wage by 2 percent, the net monthly wage goes to 2,618 euros and so on.

The table below shows how much a gross wage increase makes a net per month.

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It can be seen that with a gross annual wage of 40,000 euros with an increase of 2 percent, you will have 33 euros more net per month.This difference is much smaller for salaries of 60,000 euros and 70,000 euros. In the first case, a net amount of 51 euros will be added and in the second case, a net amount of 52 euros.

The latter has to do with the threshold of the tax brackets: above 69,398 euros you pay the higher rate of 49.5 percent in 2022. And the phasing out of tax credits is also making itself felt more strongly.

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Author: Jobly