Minister Eelco Heinen (Finance, VVD) has passed over his own civil servants, MPs from the coalition and responsible State Secretary Eelco Eerenberg (D66) with his statements about changes to the wealth tax. The House of Representatives adopted the law for this purpose, on reform of the so-called box 3, in mid-February. But last Wednesday, just before the debate on the government statement, Heinen surprisingly announced that the law must “go back to the drawing board” and that “something did not go right.”
Heinen had spoken with a group of civil servants and State Secretary Eerenberg about his wish to amend the law, but there was no agreement yet on how this should be done. Nor had it been agreed in the coalition that Heinen, who does not have taxes in his portfolio, would publicly announce that the cabinet wants to amend the law.
This is evident from conversations NRC conducted with twenty-six sources around the cabinet, in the coalition, civil service and interest groups. Some of the sources spoke on the basis of anonymity in order to speak freely. It is unusual for a minister to announce that he will amend a law after it has been discussed in the House of Representatives and before it has been discussed in the Senate.
With his statements, Heinen created a fait accompli, which surprised MPs, civil servants and lobbyists involved: a law that had just been adopted by parliament after more than two years of work would still be amended. According to sources from The Hague, the cabinet will provide more clarity about the adjustment and its consequences this Friday or early next week.
Changing the law could have major financial consequences for the cabinet; Due to possible changes, the government could lose billions of euros in tax revenue from 2028. The government will have to cover that gap elsewhere in the budget. When Heinen made his statements, that cover had not yet been found.
The immediate reason for his statements was the “wide commotion” that had arisen “about the supposed consequences of the law, both at home and abroad,” Heinen tells NRC know in a comment. “It was also not certain that the law would pass in the Senate. This could have major budgetary consequences, for which he is responsible,” his spokesperson wrote.
Prior to his announcement, Heinen had, at his own request, “explored options with officials on parts of the law, in response to declining political and social support,” the spokesperson said. He also spoke with State Secretary Eerenberg about the concerns surrounding the law. “The minister then answered questions posed to him before the debate on the government statement to journalists who were present.”
Pressure from investors
Heinen’s turnaround followed weeks of mounting pressure from investors, foreign billionaires and the Dutch start-up sector. That pressure was not so much increased in The Hague’s private rooms and direct conversations with the minister, but mainly in public. There was unrest which, according to Heinen, forced him to intervene.
Dutch tech entrepreneurs took to the networking site LinkedIn en masse with extensive posts. Prince Constantijn, special envoy of start-up organization Techleap, warned on TV that start-ups will avoid the Netherlands because the new tax law would deter investors. With the new wealth tax, the Netherlands would send the signal “not open for business“to be, he said in talk show WNL on Sunday.
At the same time warned The Washington Postowned by multi-billionaire Jeff Bezos, in an editorial that the Netherlands is ruining its financial reputation with “one of the most aggressive wealth taxes in the world.” According to The Daily Telegraph international investors are said to be “in panic” due to the “insane” law. Also Elon Musk tweeted about the law. The American interest runs parallel with a discussion about a new wealth tax in California, where many large tech companies are located and where a referendum on such a tax may be held in November.
The criticism focused mainly on the new ‘capital growth tax’. As a result, returns that investors have only enjoyed on paper will also be taxed from 2028. For example, if shares have increased in value during a year, investors pay 36 percent tax on that increase in value – even if they have not sold those shares. Critics believe this could force people to sell some of their assets to pay taxes. According to the critics, it also makes people less inclined to invest in companies, because this is taxed more heavily.
The law provides an exception for less easily tradable assets, such as real estate and assets in family businesses. This would not be taxed on the annual growth in value, but only on the profit when the assets are actually sold. At the insistence of the start-up sector, an exception has already been made for start-up companies, but according to Prince Constantijn and other critics, this is not broad enough.
While pressure mounted from outside, lobbying behind the scenes had largely come to a standstill, according to conversations with lobbyists for the tech sector and large companies. After all, the law had already been passed and was now going to the Senate. The Finance Committee decided two weeks ago to “carefully” examine the bill this spring. On talk show Café Kockelmann Heinen said at the end of February that he “also saw support disappearing in the Senate.” But according to sources in the Senate, his own VVD had not yet taken a position on the law; the senators first wanted to investigate the law further.
In the week prior to the cabinet change, during which Heinen remained in place as Minister of Finance, he began to interfere with the file, according to those involved. He wanted to hear from civil servants how the law could be amended.
The outgoing State Secretary for Fiscal Affairs, Eugène Heijnen (BBB), who was still the minister with primary responsibility at that time, said he did not experience any of this. “On Thursday I had a farewell reception, and it was not about this at all,” he says by telephone. NRC. “The mood was: everyone was happy that the law was in place, even though it was an intermediate station.”
Tax headache file
The law serves as a bridge towards a completely new wealth tax, which must be designed in the coming years. The law was thus intended to provisionally solve the biggest tax headache in recent years. Amendment to the law became necessary due to a judgment of the Supreme Court in December 2021, in which the then wealth tax in box 3 – based on fictitious returns – was declared unlawful.
The new box 3 law is based on the actual return that savers and investors have enjoyed. Changing the law is not easy, because every shift has major financial consequences for the government’s tax revenues. According to insiders, the government is working on various scenarios, some of which follow from this motions that MPs submitted in recent weeks.
This includes looking at ‘loss carry-back’, whereby investors can offset losses in a particular year against any profits from the previous year. That previous profit is then adjusted downwards, leading to a tax refund. According to the ministry, this adjustment would cost the treasury more than 1.2 billion euros in 2028, and another 1 billion the following year.
It appears that Heinen’s announcement has also made larger adjustments open for discussion, such as completely abolishing the capital growth tax. This intervention would cost the treasury approximately 2.4 billion euros in 2028. VVD faction leader Ruben Brekelmans hinted last weekend that such a change is his party’s preference. At a meeting with fellow party members in Groningen, Brekelmans said, according to those present, that the growth tax should be “taken again” because it could potentially harm foreign investments.
Techleap, Prince Constantijn’s start-up organization, also sees Heinen’s announcement as an opening to discuss the capital growth tax again. “We would like to discuss the possibilities with the Ministry of Finance,” says Marije Dijksma of Techleap. “We would prefer to see this tax scrapped. There are now investors who say: we are not coming to the Netherlands with this legislation. I expect that the Ministry of Finance will look at this again after all the criticism that has arisen.”
With the cooperation of Marko de Haan and Eline Nugteren
