Left Could Dominate Dutch Tax Reform Talks

Mark Rutte can’t count on other conservatives as he sets out to overhaul the Dutch tax code.

Dutch prime minister Mark Rutte and Labor Party leader Diederik Samsom answer questions from reporters in The Hague, September 17, 2012
Dutch prime minister Mark Rutte and Labor Party leader Diederik Samsom answer questions from reporters in The Hague, September 17, 2012 (EPA)

If the Netherlands’ right-wing opposition parties pass up a chance to join talks about tax reform, the country could end up with a far more progressive tax system than it wants.

The conservative weekly Elsevier warns that political games could leave the left with disproportionate influence as the ruling Labor and liberal parties set out to overhaul the tax code.

The two have reached a tentative accord for tax reform, but they have refused to publicize the details for fear of dissuading other parties from giving their support.

Different priorities

The Netherlands — Europe’s sixth largest economy — has one of the most progressive tax systems in the world. The top income tax rate of 52 percent kicks in at €56,000 per year.

But the country taxes less than many of its Northern European neighbors: 40 percent of Dutch gross domestic product goes to taxes.

Labor, the junior partner in Mark Rutte’s coalition government, wants taxes to be even more distributive. Rutte’s priority is to lower rates.

The two parties command a comfortable majority in the lower house of parliament but not in the Senate, where they need the support of other parties to make law.

Right-wing counterweight

The nationalist Freedom Party, which supports tax cuts, refuses to cooperate with the coalition altogether.

That leaves the Christian Democrats as the only possible counterweight to the various left-wing parties that are interested in rewriting the tax code.

But they are refusing the help. The reason, according to Elsevier, is that they want to be able to blame the liberals in the next election for compromising with the left.

Consensus

There is a crossparty consensus that the tax system has become too bloated and that the tax burden should shift away from labor.

High business taxes are seen as discouraging hiring. With unemployment as 7.2 percent — high by Dutch standards — and the economy expanding slowly, left- and right-wing parties agree work needs to be made cheaper.

But they disagree where the burden should shift to.

Labor wants to scrap tax credits for businesses, including the self-employed, whom it tends to see as unfair competition for unionized labor.

The liberals would rather cut spending in order to finance tax relief for businesses and workers.

Devolution

Other proposals include phasing out a 6-percent discount sales tax rate in favor of a flat 21-percent rate — something that could raise almost €7 billion in extra revenue per year — and giving local governments more tax power, saving the central government around €5 billion in annual spending.

Rutte’s government has devolved child and elderly care to municipalities. They now want the power to finance their newfound responsibilities.

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