The middle class will pay for extravagance

Not so long ago, RutteVier’s money grew on his back. Billions were invested and billions were compensated. The bill is due this year. Who will pay it? Officials recommend taxing wealth more heavily. But most of the assets are in pensions and your own home, and Prime Minister Mark Rutte (VVD) says: ‘You don’t want to touch anyone’s first house, pension or SMEs.’ The fear is that the middle class will ultimately pay for government extravagance again.

RutteVier’s account

The government spent 90 billion euros to absorb the impact of corona, about half of which went to entrepreneurs. RutteVier established a climate fund of DKK 35 billion. and a nitrogen fund of DKK 25 billion. 10 billion euros have been made available to repair earthquake damage in Groningen, 5.5 billion euros to compensate victims of the benefits case and 2.8 billion euros for wealthy people who have been wrongly paying tax on fictitious returns for years.

Students who did not receive a basic grant between 2015 and 2023 will receive a one-off compensation of 1 billion euros. Over 45s, who are disadvantaged by the transition to the new pension system, also get 1 billion, but structurally speaking.

To accommodate households in the high prices this year, the government has reduced taxes on fuel and energy by 6 billion euros.

At the Senate’s insistence, the national pension will rise in line with the minimum wage, which will cost an extra 1.1 billion euros next year. The minimum wage increase itself will cost the government 1.5 billion euros.

Savings elsewhere do not seem to be an option. There is hardly any political party that advocates a smaller government. Who will pay the high costs?

The companies again?

Please not the business world, says State Secretary for Finance Marnix van Rij (CDA). According to his estimate, the previous government already increased the burden on companies by 7 to 8 billion euros per year, with another 6 billion euros added during this period.

In the coalition agreement, it was agreed that corporation tax for small and medium-sized companies will fall. Instead, the tax is increased for companies with a profit of at least 200,000 euros. It will bring the treasury 1.3 billion euros.

A bracket is added in box 2 for income from companies. Tax of 29.5 instead of 26 percent must be paid on more than 67,000 euros of income from a company.

Tax assets more heavily

The tenor in The Hague is that wealth must be taxed more heavily. It starts with this. It was agreed in the coalition agreement that the tax exemption in box 3 – income from wealth – should increase from 50,000 to 80,000 euros. It does not happen. Turnover: 300 million euros. Income in boxes 2 and 3 also count towards the reduction of the general tax deduction.

Big steps are more sensitive. VVD party leader Sophie Hermans has started the discussion in her party. It will tax wealth more heavily so that taxes on work can be lowered. Not an odd stance for a party that claims to stand up for the ‘hard-working Dutchman’, but Herman’s faces aversion among supporters.

Income tax is high in the Netherlands, especially for families where only one parent works. Anyone who needs to earn more can soon transfer half of their salary increase to the IRS. There is no point in working more hours for the lowest paid: they will lose benefits. The combination of progressive tax rates and deductions for the lowest incomes means that income inequality in the Netherlands is low. The state has learned the art of leveling well.

Wealth tax has been abolished

This does not apply to wealth: the Netherlands has about the highest wealth inequality in the world. The richest 10 percent of the Dutch own more than 60 percent of the wealth, the richest 1 percent own 26 percent.

Not so long ago, relations were even more lopsided. In 2015, the richest 10 percent owned almost 70 percent of the wealth, and the richest 1 percent had 32 percent.

That has not changed by charging more tax on wealth. In fact, there is strictly no tax on wealth. As in other European countries, the wealth tax was abolished around the turn of the century, when capital proved to be so mobile that a tax no longer made sense.

This was replaced by the capital gains tax in Box 3, which was based on a fictitious return: capital gains tax. The Supreme Court ruled that out last year. You cannot tax savers and investors for returns they have not earned.

The Foreign Minister is still thinking

The government wants to tax the real ‘value development’ of assets from 2025. This could lead to unpleasant situations. Assume that the holiday home of a couple with a state pension becomes worth 10,000 euros more in one year. Do they have to pay capital gains tax on it? What if they don’t have that money?

‘It should be taken into account in the further elaboration’, according to Van Rij.

What if the value development is negative? If the stock market or the housing market collapses? Do shareholders and owners of a second home get money back from the tax authorities?

Van Rij writes that a ‘loss settlement’ is being ‘considered’.

These are the two most obvious questions about a capital gains tax, but the Secretary of State has no answer.

Van Rij wants to see money

A capital gains tax sounds a bit like a paper reality. That capital growth has not yet been cashed in. Why not only tax when shares or another home is sold?

Van Rij is aware of that. He writes to the House of Representatives that a pure capital gains tax – for shares and real estate – will encourage “deferral of taxation”. In other words: we don’t collect money every year.

Most power is in stone

If you want to tax your wealth more heavily, you’ll run into a problem: Most of your wealth is locked up in housing. (Unless you count the pension funds as ‘assets’, there is even more money, but most political parties refrain from this.) Hence the unrest among VVD members: Many members have their own home.

In the country, it is six out of ten. Overall, they are not bad. Homeowners have 14 times as much wealth as renters, on average 36,000 euros against 2,600 euros. Tenants have not built up more or less capital in the past ten years. Buyers have won an average of 10,500 euros.

Mortgage debt and equity are not included in these figures. The difference lies in lower housing costs. The average buyer spends less money on their mortgage each month than the tenant pays in rent. On a monthly or annual basis it’s not a world of difference, but after ten years it starts to increase.

In the figures on wealth inequality, the freehold value of the homes has been taken into account. This explains the decline in wealth inequality. The homes have almost doubled in value over the past ten years. Homeowners with a medium to high income have benefited relatively more from this than the very rich, who have a lot of money in shares in addition to their own home.

Is a house really ‘wealth’?

Should the owner-occupied home be taxed at all? Is a house really ‘wealth’? For now, the tax authorities say: not the first (‘own’) house, but the second house does. The first house is in box 1, other houses in box 3. The home owner also pays a little tax in box 1: the notional rental value, a percentage of the WOZ value added to the income. Last year it involved 3.1 billion euros in tax revenue.

The opposite is the mortgage interest deduction. Last year it was a maximum of 43 percent and cost the treasury 8.8 billion euros.

Precisely by not considering the owner-occupied home as an ‘asset’, and by allowing buyers to deduct mortgage interest from the tax, the state has stimulated home ownership. Tenants do not enjoy such a tax advantage.

Crossing towards each other

An advisory group of officials led by the chairman of the Dutch Financial Markets Authority, Laura van Geest, has proposed increasing the nominal rental value – for most homeowners 0.45 percent – ​​to 2.45 percent and reducing it further. mortgage interest deduction to 31 per cent.

A more elegant solution would be to cross the two against each other. No tax on your own home? So no tax benefit. It would have cost homeowners 5.7 billion euros last year.

Grants are (for the state) not a fat pot

The last form of wealth the government could look at is inheritance. Anyone who inherits €100,000 from their parents pays €7,844 in tax. A working person pays 40,782 euros in income tax on the same amount. This kind of inequality in wealth contributes to inequality in opportunity: it gives children of wealthy parents an extra advantage.

But that much money is not available from the wealthy. Income tax gives almost 66 billion euros, profit taxes for companies 31 billion. Inheritance and gift taxes? 2.5 billion euros. No change, but no pot for the state.

Once again the large middle group

We end up with the large middle group that already pays the majority of taxes in the Netherlands.

Raising the tax on wealth to lower the tax on work sounds sympathetic, but experience shows that tax cuts are often either canceled or later reversed.

Although households will get a discount on their energy tax this year, rates have risen step by step in previous years and will continue to rise next year.

The government has lowered the tax on petrol and diesel by 17 and 11 øre respectively this year. This wiped out 15 years of excise duty increases in one fell swoop. This reduction is also temporary: refueling will become more expensive next year.

For example, tax cuts are essentially tax deferrals: the bill comes a year later.

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