On November 10, 2015 the International Monetary Fund (IMF) published a Staff Concluding Statement of the 2015 Article IV Mission with respect to the Netherlands. The statement contains a.o. a paragraph titled: “Tax Reform – Promoting Growth and Employment”.
In this paragraph “Tax Reform – Promoting Growth and Employment” the following is stated:
“Tax reforms could increase potential growth, enhance fairness, and improve efficiency. Despite progress in recent years, the Dutch tax and benefit system remains unbalanced; large efficiency gains could be achieved by shifting the tax burden away from labor, and towards consumption and capital income, in particular on residential property ownership. This makes some sense on distributional grounds as well; Dutch households have high net wealth (excluding pension entitlements) on average, but it is unevenly distributed and most of the assets are in illiquid real estate and pension accounts. The authorities have recently taken a number of steps in the right direction. For example, it has been decided to gradually phase out the large subsidies on housing investment and pension savings and to roll back some of the regressive features of the taxation of capital income. Also, next year’s €5 billion labor tax cut package is mainly targeted at female workers and low-wage earners – the most responsive groups – which should help create new jobs and increase hours worked. But more could be done and faster. The large subsidies on home ownership and pension income could be phased out more quickly than currently envisaged, allowing a budget-neutral and growth-enhancing rapid reduction of the labor tax wedge. Moreover, important tax revenue and efficiency gains would result from harmonizing the currently fragmented capital income and value-added tax schemes. Revenue shortfalls from corporate tax reforms could be offset through broadening the VAT base and unifying VAT rates.
The tax system favors debt and has contributed to overly-leveraged households and firms. Interest deductibility has favored debt over equity financing, resulting in excessive leverage, exacerbating business cycles and potentially threatening financial and fiscal sustainability. Future tax reforms should minimize the so-called debt bias. The Dutch authorities have already taken some measures to foster a gradual deleveraging in the housing sector (e.g., decreasing loan-to-value (LTV) ratios and mortgage interest deductibility). Similar measures should be taken in the corporate sector. For example, an allowance for corporate equity (ACE) could be introduced and calibrated so that equity and debt finance become fiscally neutral to encourage equity building. A similar type of allowance could in principle also be introduced in the housing sector.”
Click here to be forwarded to the full text of the Staff Concluding Statement of the 2015 Article IV Mission with respect to the Kingdom of the Netherlands as published on the website of the IMF, which will open in a new window.
Copyright – internationaltaxplaza.info
Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!
and
Follow International Tax Plaza on Facebook
