Free Market Fundamentalist

Dutch Government Mistakes Reagan’s Warning for Advice

If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Ronald Reagan
American president Ronald Reagan at Rancho Del Cielo in California, August 31, 1985 (Ronald Reagan Presidential Library)

Ronald Reagan once quipped about government’s view of the economy: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

For the American president, it was a cautionary tale. In the newspaper Trouw, I argue the Dutch government seems to have mistaken it for advice.

Tax it

First: taxes. The four-party government (which includes my own) is raising tax on CO₂ emissions and natural gas use. It is also lifting an exemption from coal tax for energy companies and industrial users.

Currently Dutch gas tax is regressive: households and small businesses pay the highest rate (49 eurocents per cubic meter) and factories the lowest (4 cents).

Plants that burn coal to generate electricity (the Netherlands has three) or make steel (one: Tata) don’t pay tax over the stuff even though coal is the dirtiest of fossil fuels.

So these tax changes are justified, but they are not offset by cuts in, say, corporate tax. The government is using the revenue to pay for higher interest rates on its debts.

Regulate it

Next: regulation. The Netherlands will mandate the blending of biofuels in gasoline and recycled- and biomaterials in new plastics (at least 25 percent by 2027).

New solar parks will be required to install batteries that can store power generated during the day for use in the evening.

Companies that don’t pay CO₂ tax will be required to cut their emissions in half by 2030.

Subsidize it

Higher taxes, more regulation; as Reagan predicted, they are followed by subsidies to avoid companies leaving the Netherlands.

There is €3 billion to help the country’s largest polluters, including energy giant Shell and Yara’s fertilizer factory in Sluiskil, switch to cleaner fuels, like hydrogen. Tata Steel alone would require €1 billion to renovate its plant in IJmuiden.

Tax pollution instead

The government argues it’s better to clean up industries in the Netherlands than chase them away, which is right. If Tata builds another coal-fired blast furnace in India and exports the steel to Europe on oil-fueled ships, that’s worse for the climate and Dutch workers will have lost their jobs.

But there is a better way: taxing pollution instead of resource use and profits.

The Netherlands has the highest taxes on diesel and petrol in Europe, making electric driving relatively affordable by comparison. 11 percent of Dutch cars are electric, up by a third in the last year. Yet kerosine, which is even dirtier than diesel and petrol, has no tax. The government prefers to subsidize synthetic fuels.

Large polluters must buy emission rights from the EU. Those rights are capped and they can be traded, making it worthwhile for companies to cut greenhouse gas emissions. Since the introduction of the Emissions Trading System, the companies included in it have reduced their emissions by 43 percent.

The EU is bringing shipping into the system. Agriculture remains exempt. It is also exempt from Dutch CO₂ tax despite causing 16 percent of Dutch emissions.

Of those emissions, 40 percent are caused by meat production. Yet the government decided against raising sales tax on meat from 9 to 21 percent.

Dairy causes far more pollution than plant-based alternatives, yet cow milk remains exempt from consumption tax while taxes on almond, oat and other plant-based milks and yoghurts will rise from 8 to 26 cents per liter. That’s the opposite of making the polluter pay. If it causes an Alpro or an Oatly to go bankrupt, will they receive a bailout too?