A ruling by the Supreme Court in favor of Dutch savers will not cost the cabinet hundreds of millions, but billions in compensation. That is the expectation of the coalition parties of Rutte IV, insiders say NRC. The harsh judgment of the Supreme Court on the wealth tax in box 3 therefore not only immediately creates a gap in the budget, but also threatens to divide the coalition. Because who should pay for that?
D66 is now the first of the four parties to speak out openly and wants the cabinet to collect the money from wealthy citizens. That is the group that will soon receive money back as a result of the ruling. According to Member of Parliament Romke de Jong, it is “good practice that we look for the money needed for restoration of rights in the same domain”. In other words: if wealth benefits, wealth may cough it up. Inside the chambers can be heard that the VVD in particular sees nothing in this. The CDA would also be skeptical.
At the end of last year, the judgment of the Supreme Court did away with the method of box 3 of the tax system, the box in which savers and investors with assets above 25,000 euros (in 2017, now: 50,000 euros) are taxed. Since 2017, the Tax and Customs Administration has assumed, according to a simple formula, that all these people will achieve a fixed return, whereby they invest part and save part. The problem: those who only save and invest nothing will never achieve that predicted return – but they will be taxed that way.
Immediately after the verdict it was clear that tens of thousands of Dutch people had to get their overpaid tax money back. They had made an official objection for the first years in which these rules applied, the Supreme Court ruled in their favor. State Secretary for Taxation Marnix van Rij (CDA) wrote to the House of Representatives last week that the ruling has “major budgetary consequences”, but did not commit an amount to it.
Insiders around coalition and cabinet call it against NRC It is now very likely that the cabinet will eventually have to compensate more than a million Dutch people. They did not object, but as savers they paid too much tax and would also deserve reparation.
D66 suggests taxing assets
As a result, the bill runs into billions. Estimates by lawyers at the Ministry of Finance vary, but several billions per year have been taken into account since 2017, the year of its introduction. The government can choose to limit the costs by accommodating a smaller group, but then runs the risk that other taxpayers will still object.
The fact that D66 proposes to pay the compensation by taxing the larger wealth is in line with the party’s election manifesto, as is that of the ChristenUnie. But VVD and CDA were more critical of this, and most plans were missing in the coalition agreement. As an alternative, the government could allow the national debt to rise, as is the case with the funds set up for the energy transition and the nitrogen crisis.
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A new tax is not simply arranged. Due to numerous problems, the Tax and Customs Administration is running at half-speed and recently proved unable to abolish the tax-free ‘jubelton’ for home buyers and to reduce the VAT on fruit and vegetables to zero percent. Because of these implementation problems, the coalition agreement promised before the judgment that the calculation method in box 3 would be overhauled, but not before 2025.
Need a quick solution
The coalition will also have to come up with a solution for this. Because now that box 3 is officially rattling, the cabinet does not dare to use it in the future either. For this year, the Tax and Customs Administration will not impose any assessment at all on people who pay tax on their income from assets in box 3. The risk of further procedures is too great.
That is not only good news for savers who were taxed disproportionately, but also for investors who actually made much more profit than the fixed return used by the tax authorities. They also do not receive an assessment pending a better tax. For example, as long as Box 3 does not have a successor, the government will miss out on another 4.8 billion euros in annual income.
It will force the coalition, just getting started, to make quick choices.
A version of this article also appeared in NRC on the morning of February 1, 2022