Social partners react critically to cabinet's tax proposals

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In September 1999, the Dutch government presented proposals for a radical reform of the tax system, whereby the tax base will be broadened, the tax burden shifted and higher environmental taxes levied. The social partners have generally been critical of the plan.

On 14 September 1999, the Dutch cabinet presented its tax plans for the next century (Belastingplan 2001). Two fundamental changes have been proposed, compared with the current system as well as with those in most other countries. First, the plan introduces the concept of "boxes", which distinguish the types of income earned by taxpayers. The first box includes wage-based earnings and profits from a company. The second box covers profit from a substantial stakeholding in a company, and the third relates to capital-based earnings. The second major change is the proposed taxation of capital-based returns, which assumes that a 4% yield will be generated. A 30% tax scale will then be applied to this yield stemming from capital reserves in excess of NLG 75,000. Because taxes will be imposed on all forms of capital, the new situation will first and foremost have the effect of broadening the tax base. Extra income thus generated will be combined with additional income derived from increasing the VAT rate in order to lower tax rates. The highest tax rate will be lowered from 60% to 52%. Second, the new plans involve shifting the tax rates: more will be levied on capital and less on work. The third characteristic is going green: the rates imposed on environmentally harmful products will increase.

Despite a measure of criticism, the largest trade union confederation, FNV, responded positively to the proposals. FNV believes that while minimum wage earners receiving social security benefits will not profit sufficiently from the consequent reduction in the burden of taxation, high wage earners stand to profit unduly. According to FNV, the plan also continues to cling to the traditional "breadwinner" model, while certain elements in the cabinet's proposal discriminate against part-time employees.

The central employers' association, VNO-NCW, has yet to express its final verdict, but is critical of certain areas:

• the tax burden imposed on the middle income bracket will be too high;

• company directors and majority shareholders may be confronted with an increased tax burden of up to 20%;

• the highest tax rate (lowered to 52%) is still high in an international perspective; and

• insufficient opportunities for pension accrual will be available to employees and self-employed individuals.

MKB-Nederland, the association representing employers in the small and medium-sized business sector, believes that the plans will be disadvantageous for entrepreneurs at the helm of private limited-liability companies (the Dutch BV model) and business owners who generate only limited earnings. MKB-Nederland also fears that the plans will provide insufficient incentive for benefit recipients actively to seek employment, as the potentially meagre returns would fail to justify the effort.