Did you know that while the index mechanism automatically increases salaries and pensions by 2.5%, it does not adapt tax rates to changes in costs of living?
In its most recent ‘Econews’ publication, the Chamber of Employees draws attention to the fact that although every index cut increases salaries, it simultaneously leads to a progression in the tax table.
According to the national tax table, lower salaries are taxed less significantly than elevated ones. For instance, a couple making €20,400 per year does not pay taxes, but will have to pay €289 if the salary reaches €26,150 per year.
The Chamber of Employees thus concludes that with every index cut, the government increases its revenue “at the cost” of residents and taxable cross-border employees. The way things stand, taxes cancel out any progress made through the index cut, which reduces the protective effect of the mechanism.
The Chamber therefore proposes to also adjust the tax table according to inflation and if an index cut is made. However, it remains to be seen whether this idea will be addressed during the next tripartite meeting.
