WHERE AUSTRIAN ECONOMICS MEETS REAL WORLD ACTION

A Dutch bill would keep the pension line frozen at €137,800 to 2032 to raise revenue, so each year more earned income loses its pre-tax pension treatment.

You run a 30-person engineering firm in Eindhoven. You’ve found the senior lead you need, and you’ve offered her €160,000.

She asks about the pension. You explain that your scheme builds her pension, before tax, on her salary up to €137,800. On the last €22,200 it builds nothing before tax. If she wants to save that part for retirement, she does it from pay that has already been taxed.

Then she asks the question you can’t answer: will that line still be €137,800 when she’s earning €180,000? If the government gets its way, yes. Until 2032.

Since 2015, Dutch law has capped the income on which a pension, or a private retirement annuity, can be built up before tax. The cap started at €100,000. The law says it rises at the start of each year, in line with the minimum wage. It now stands at €137,800.

It hasn’t risen since 2024. For 2025 and 2026, Parliament froze it through an amendment, to pay for keeping and widening the tax deduction for charitable gifts.

Now the government wants six more years. Article LVII of its 2027 tax bill, presented on 15 September, switches off the yearly increase at the start of every year from 2027 to 2032. If it passes, the line will have stood still for eight years in a row. Above it, you can still save for retirement, but only from taxed income, with an exemption from the Dutch tax on savings and investments.

The bill is not yet law. The finance committee meets on it on 26 October. The House of Representatives debates it from 3 to 5 November and again the following week, with votes planned for 12 November. If enacted, it takes effect on 1 January 2027.

The government’s case deserves to be stated properly. The freeze touches only income above €137,800. Nobody loses a pension already built. The tax authority says it can run it. And it raises real money: €31 million in 2027, rising to €229 million a year.

The government is also candid about why. The explanatory memorandum calls the freeze “a general budget-cover measure” from the coalition agreement, taken “with a budgetary aim”. The official summary puts it plainly: “People with the highest incomes get slightly less tax advantage on building up a pension. This brings the government money to pay for spending.”

Take every word of that as true. What follows is unaffected.

Earned income is not the state’s to reallocate

Nobody hands out a salary of €160,000. An employer pays it because the work is worth more to the firm, and through it to customers, than it costs. Friedrich Hayek argued in The Constitution of Liberty (1960) that in a free society rewards track the value of what you provide to others, not anyone’s judgement of your merit. A high income is the record of services other people chose to pay for.

Once that exchange is done, the money belongs to the person who earned it. What she does with it, spend it now or set it aside for thirty years, is her decision. This bill doesn’t say she earned too much. It says, in the government’s own words, that the money is needed “to pay for spending”. That is a decision to take more of what is already hers because the state wants it, and no amount of candour makes it fair.

It also isn’t a neutral contribution. In a progressive system, those above the line already pay in far more than they draw out. This measure adds to their bill, with no stated purpose except revenue.

A rule each budget can switch off

The law says the line rises every year. It has been switched off twice: once to pay for the gift deduction, and now, if this passes, to raise revenue. Neither time did the reason have anything to do with pensions.

Hayek described the rule of law in The Road to Serfdom (1944) as government “bound by rules fixed and announced beforehand—rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge.” He wasn’t writing about tax thresholds; applying it here is our extension. But a pension is the clearest case of planning one’s affairs decades ahead.

We say you can price a rule but you can’t price a discretion. An indexation clause that two budgets in a row have suspended is no longer a rule a saver can price. The memorandum says no evaluation is planned, because this is merely “not indexing a limit” and “there is no substantial policy change”. Eight frozen years is a change. It just arrives one budget at a time.

What the high earner does next

This is where the cost shows up. Each person above the line makes choices that are reasonable for them. Added together, they create less value than they otherwise would.

In the left-hand column there is no cap: every saver, at any income, chooses whether to defer tax on retirement saving. The right-hand column is the Dutch line as the bill would freeze it.

The same earner, two sets of rules

Saving matters most. Eugen von Böhm-Bawerk showed that production which takes longer, like the fisherman who goes hungry for a day to make a net, yields more than production that doesn’t. Somebody has to give up consumption now to fund it. He wasn’t writing about pension tax rules; the extension is ours. But a rule that makes saving dearer means less of that waiting gets done, and fewer of the longer, more productive projects get funded.

Frédéric Bastiat, a French liberal economist who came before the Austrian school, warned in “What Is Seen and What Is Not Seen” (1850) that the state’s spending is visible, while what the taxpayer would have done with the money never happens, so nobody sees it. Here, €229 million a year is what is seen. The savings not made, the hire who went elsewhere and the expansion not taken on are not.

The line moves towards more people each year

A frozen line doesn’t stay where it is in practice. Pay rises, the line doesn’t, and each year more income, and more people, end up above it.

The government’s own figures show how fast the line closes in. The freeze raises €31 million in 2027 and €182 million in 2031, almost six times as much, then €229 million a year once fully in place. Nobody votes on each year’s extra take; it comes from leaving the line where it is.

The best objection

€229 million a year is a small sum for a national budget. It touches only the best paid, and they can still save above the line from taxed income. Isn’t this a small ask?

The sum is small, and we don’t claim this measure alone measurably shrinks the Dutch economy. The argument is about direction and precedent. Freezing it has already been used twice to pay for something else, so it will be tempting a third time. And the saver above the line still loses the one thing a pension promises: rules that hold long enough to plan on.

The concession stands: the freeze is simple to run and raises real money. That is exactly what makes it tempting to repeat.

This is analysis, not legal, tax or investment advice. Check your own position with an adviser.

Delete the cap. Let every saver decide for themselves whether to defer tax on retirement saving, how much and when: set money aside before tax and pay tax once when it is drawn, or pay tax now and save from what is left. The same choice is open to everyone, at any income, employed or self-employed.

In law, that means deleting the cap from the wage tax and income tax acts. No budget could then move the line, because there would be none. Employers would build pay around what their staff value, not a line in the tax code.

It passes the equal-treatment test. There is no subsidy, grant or tax break for anyone, and no carve-out by income, employer or type of work. Simply unfreezing the cap would fall short: it would still leave a line the state can move, and still treat the same euro of saving differently depending on how much its saver earns.

Stay free,

Jean-Pierre

The Austrian Actor

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