The amount of withholding tax received from investments in the first quarter of this year increased by 45 percent to almost 1.2 billion euros, primarily due to the rise in interest rates and the growing popularity of term accounts and bonds. This increase was reported by De Tijd, who noted that while higher interest rates are making it more expensive for the government to refinance loans, they also have a positive impact on the treasury’s income.
According to new figures from the Federal Public Service Finance, income from withholding tax increased by 362 million euros compared to the same period last year. This was largely due to a 25 percent increase in withholding tax on dividends and an 81 percent increase in other movable income, mainly from fixed-income products like term accounts or bonds.
The significant increase in withholding tax on proceeds from investments can be attributed to two main reasons. Firstly, the European Central Bank’s interest rate hikes have led to higher yields on investments. Secondly, households have been transferring billions of euros from tax-friendly savings accounts to more heavily taxed term deposits and bonds, as they offer higher returns. This shift has resulted in decreased balances on savings and current accounts while boosting investments in term deposits and bonds.
Between February 2023 and February 2024, around 30 billion euros moved from tax-friendly savings accounts to term deposits and bonds. Additionally, families invested a record amount of 33 billion euros in bonds last year, all subject to the 30 percent withholding tax on proceeds. This trend reflects a strategic move by investors and savers to seek higher returns on their investments amidst rising interest rates and shifting market conditions.
Overall, the rise in interest rates has had both positive and negative effects on government finances. While it has made it more expensive for the government to refinance loans, it has also led to increased revenue from withholding taxes on investments.
In conclusion, investment strategies continue to evolve as market conditions change and investors seek higher returns for their money. With rising interest rates driving up yields on certain types of investments like term accounts or bonds, many individuals are moving funds out of low-tax savings accounts into these heavier-taxed options despite potential consequences for their overall financial health.
However, this trend is not likely to subside anytime soon as long as market conditions remain volatile and inflationary pressures persist across Europe. As such, policymakers will need to continue monitoring these trends closely while working towards finding ways