Dutch Tax Reform Talks Collapse as Centrists Walk Out

Opposition parties are unimpressed by the government’s tax proposals.

Dutch liberal Democrat party leader Alexander Pechtold visits Breda, November 7, 2009
Dutch liberal Democrat party leader Alexander Pechtold visits Breda, November 7, 2009 (Wikimedia Commons/Sebastiaan ter Burg)

Six-party talks about a comprehensive overhaul of the Dutch tax system collapsed on Monday when opposition parties walked away from a deal that would have shifted the tax burden from labor to capital and consumption.

Alexander Pechtold, leader of the centrist liberal Democrats whose support the ruling parties need in the upper chamber of parliament to pass legislation, said the proposed reforms would do too little to create jobs.

Independent forecasts showed the package of tax changes would have raised employment by only 35,000.

Last month, 633,000 Dutch workers were unemployed, representing 7.1 percent of the workforce.

Prime Minister Mark Rutte’s government — a coalition of the left-wing Labor Party and the right-wing liberals — has proposed reducing labor costs to encourage hiring and raise the capital and sales tax to make up the difference.

Ministers said on Tuesday they would push ahead with tax relief, counting on the Christian Democrats instead to support them in the Senate. But the liberals said a higher sales tax was now off the table.

The Christian Democrats, who are the second largest party in the upper chamber, have criticized Rutte for raising taxes €20 billion during his term to keep the Netherlands’ deficit under the European Union’s 3 percent treaty ceiling. The proposed tax relief would only amount to €5 billion per year.

The conservative weekly Elsevier suggests the reason the Democrats pulled out is that they expect to form a government with the Christian Democrats and liberals next.

It makes sense Pechtold doesn’t want to needlessly stretch out Rutte’s government by talking about radical tax reforms that involve six parties.

In a more right-wing coalition, reforms would not need to take into account the Labor Party’s hesitations about lowering costs for employers nor its insistence on raising the tax on capital.

Polls put Labor and the liberals at forty seats together, down from the 76 they have in the 150-seat lower chamber today. The liberal Democrats are expected to almost double their seats in the next election, due in 2016.