Trade union leaders Hans Spekman (FNV), Hans van den Heuvel (CNV) and Nic van Holstein (VCP) seemed relaxed last Monday in the Nieuwspoort press center in The Hague. But their message to the cabinet was firm: scrap the plan to accelerate the state pension age increase within two weeks and take the WIA and WW cuts off the table. Only then will we come and talk to the cabinet.
And if not, strikes and demonstrations will follow.
Minister Hans Vijlbrief (Social Affairs and Employment, D66) also seemed unimpressed in the House of Representatives a day later. He thinks he will talk to the unions again and is writing a letter to that effect. When MPs ask him about it, he refers to it nineteen times. “A letter will be sent soon that should bring employers and employees to the table.” The proposal should be completed in a few weeks.
The ministry is now busy formulating that letter. What is already clear to everyone involved in The Hague: an accelerated increase in the state pension age as of 2033, which should have yielded 2.7 billion euros to the treasury on an annual basis, is “politically dead”. The coalition is now seriously considering an alternative: taxing the AOW.
Now, more than half of the AOW is financed by premiums paid by only working people aged 67 or over. The rest comes from taxes, which pensioners now also contribute. This share will increase with taxation.
Life expectancy
In the run-up to the House of Representatives elections, numerous reports and advice were published on the basis of which parties wrote their election manifestos. With one common denominator: because the Netherlands is aging, the costs of healthcare and social security are increasing. An authoritative group of experts and officials, the Budget Space Study Group, called this the first and most important file to tackle.
The minority cabinet of D66, VVD and CDA took that advice to heart and proposed in the coalition agreement to increase the state pension age more quickly. The agreement with the social partners is now that the age at which people receive state pension will increase by eight months for every year that life expectancy increases. The coalition wanted Dutch people to work one year longer for every year that they live longer on average.
That upset the unions. In the 2019 pension agreement, allowing the state pension age to increase more slowly with life expectancy was a condition for agreeing to the reform of the pension system. The Senate and House of Representatives adopted motions that threw the cabinet plan to the trash bin.
Added to this are the tough demands of the trade unions, which not only concern the state pension, but also the cuts to disability and unemployment benefits (WIA and WW).
‘delete’ or ‘off the table’
What now? Politics in The Hague believes that there is still room within the trade unions to discuss WIA and WW. After all, in their letter they write that the plans for WIA and WW must be ‘off the table’. That would be different from complete ‘deletion’, which is the term used to describe the AOW plan.
“The letter contains a clear layer in the reasoning of the trade union movement,” Minister Vijlbrief said on Tuesday in the debate with the House of Representatives. “You should never have made that AOW proposal,” he reads in the ultimatum, but the unions also see “the problem with disability in the Netherlands.”
It is expected that Minister Hans Vijlbrief will in any case have to come up with alternatives for the AOW plan. A frequently mentioned option is further taxisation of the AOW, possibly combined with other measures. Then retirees will gradually pay more tax on their income.
The Budget Space Study Group also repeatedly called on the coalition parties to tax the AOW. AOW pensioners, who currently do not pay contributions for that scheme and have a lower first tax bracket than working people, would then have to pay more tax. The study group recommends increasing their first bracket by one percentage point per year, until it is the same as for working people. That takes eighteen years. “As a result, the AOW costs are distributed more equally across the population,” the study group writes.
According to officials and experts, this could generate more than 5 billion euros from 2040. Because richer elderly people in particular will pay more, it directly affects the supporters of parties such as VVD, CDA and partly D66. Another sensitivity: taxation has a leveling effect (reducing income differences), because it means that older people in particular with higher supplementary pensions will pay more taxes. The assessment is that it would be less difficult for the left.
It is not said that unions and opposition parties will simply agree to this. The taxation of the AOW is almost as politically explosive as the mortgage interest deduction. Major strike actions may precede a deal on taxation. With this minority cabinet that is eager to make agreements with unions and employers, the opposition and unions have a stronger negotiating position than they have had for years.
In 2006, Wouter Bos of the (then) opposition party PvdA wanted to make pensioners pay more towards the AOW. The CDA was against that “Forest tax”, which would mean that the elderly would be “screwed”. When they ended up together with the Christian Union in the Balkenende IV cabinet (2007-2010), the dispute ended after much political theater with a much milder form of taxation, combined with incentives to work longer.
The coalition has other options, such as limiting tax benefits such as the senior discount, or reducing benefits by decoupling them from the minimum wage. But these options are even more drastic, because they will immediately be noticeable in the wallets of the elderly.
It is also an option to do nothing with the AOW. The coalition could also raise the necessary money from wealthy people or from asset transfers, as the Central Planning Bureau and other experts have often indicated. The unions have also pointed this out. But for the time being, the coalition is looking at options within the AOW.
We are now waiting for the letter from Vijlbrief.
