If the Netherlands’ right-wing opposition passes up the 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 left-wing parties with disproportionate influence as the ruling Labor and liberal parties set out to overhaul the tax code.
The two said they had reached a tentative accord for tax reform this week but refused to publicize details for fear of dissuading other parties from giving their support.
The Netherlands — Europe’s sixth largest economy — already has one of the most progressive tax systems in the world. The 52 percent top rate of income tax 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 Prime Minister Mark Rutte’s coalition government, would want taxes to be even more distributive. The priority of Rutte’s liberals 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.
The nationalist Freedom Party, which also advocates lower taxes, refuses to cooperate with the coalition at all. That leaves only the Christian Democrats, the second largest party in the upper chamber, as a possible counterweight to the various left-wing parties that are interested in rewriting the tax code.
The Christian Democrats have campaigned against Rutte’s redistribution politics which were mostly a concession to Labor. Yet they refuse to help him now, says Elsevier, so they can later accuse the liberals of being too quick to compromise with the left.
Such an accusation would not just be disingenuous; coming from a party that has governed with Labor far more often than the liberals have, voters might even see it as hypocritical.
The stakes are high. There is a crossparty consensus that the tax system has become too bloated and that the tax burden should shift away from labor. High taxes for employers are seen as discouraging them from hiring. With unemployment as 7.2 percent — high by Dutch standards — and the economy expanding too 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 more to finance tax relief for businesses and workers.
Other proposals include phasing out a 6 percent discount sales tax rate in favor of a flat 21 percent rate — something that should raise almost €7 billion in extra revenue per year — and giving local governments the power to raise more tax, saving the central government around €5 billion in annual spending.
Rutte’s government has devolved authority of child and elderly care. Municipalities now want the power to directly finance their new responsibilities.