This change is a result of the agreement reached between the government, trade unions, and employers to enhance purchasing power and address the issue of “cold progression.”
Currently, as your income increases, you move up the tax scale, resulting in higher taxes. However, since 2017, the tax scale has remained unchanged while the index, which protects purchasing power and compensates for rising prices, has increased. As a result, a portion of the income increase is eroded by taxes. For example, with a 2.5% increase, the taxpayer may only receive a net increase of 1.7%. This is what “cold progression” refers to.
To address this issue, the tripartite agreement includes a correction that will be implemented in two stages:
For this year, the government will introduce a temporary “conjuncture” tax credit. Although temporary, it will replicate the effect of two indexes on the tax scale, resulting in a tax reduction of approximately 5%. This tax credit, retroactive to 1 January, will apply for the entire year.
Here’s how it will affect different situations based on government estimates:
In 2024, there will be a significant change in approach. The temporary tax credit will be replaced by a genuine adaptation of the tax scale, equivalent to two and a half indexes, resulting in a tax reduction of 6.3%. Continuing the previous examples:
It is important to note that the impact of this tax scale change will vary depending on family situations and income levels. Furthermore, these changes will complement other measures aimed at enhancing purchasing power.
While the OGBL union has welcomed this initial progress, it emphasized its expectations for further tax reforms that were promised by the coalition but have been abandoned for this legislative period.
