Dutch Parties Agree on Tax Relief After All

Opposition parties in the Netherlands back government plans to cut taxes at the last minute.

Dutch prime minister Mark Rutte makes a speech in parliament in The Hague, November 13, 2012
Dutch prime minister Mark Rutte makes a speech in parliament in The Hague, November 13, 2012 (Rijksoverheid)

Two opposition parties in the Netherlands agreed at the last minute on Wednesday to support some €5 billion in tax relief for 2016.

Their support came after months of negotiations and is needed to get the government’s tax plan through the upper chamber where the ruling Labor and liberal parties do not have a majority.

The reforms include a higher income tax threshold and a cut in the rate for middle incomes from 42 to 40.4 percent.

The amount that Dutch people can save tax-free will also gradually be raised to €25,000 per year. Some 200,000 taxpayers would benefit from this change.

Local governments would be allowed to raise €4 billion in taxes independently. They have asked for broader taxing powers since child services and elderly care were shifted to their responsibility at the start of this year.

Concessions

To win the backing of the Christian Democrats, the whole plan will also raise subsidies for childcare by €100 million.

The liberal Democrats, for their part, insisted on a plan to phase out coal power.

The latter pulled out of tax talks this summer when they said the government’s proposals would not create enough jobs.

The two coalition parties had proposed reducing labor costs to encourage hiring and raise capital and sales taxes to make up the difference.

Forecasts showed this would have added just 35,000 jobs when more than 600,000 are unemployed.

Hoping for more

The plan agreed on Wednesday is less ambitious than Prime Minister Mark Rutte was hoping for.

The Democrats and his more right-wing liberal party share the same tax priorities, but the Labor Party is reluctant to cut taxes on businesses and high earners.

The Christian Democrats are also more business-friendly.

With Labor polling at an historic low of just ten out of 150 seats in the latest Peil.nl survey, the three parties on the right probably expect they will end up in the next government together and will then be able to enact a more comprehensive, pro-growth tax plan.

Parliamentary elections are due in early 2017.

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