Irresponsible. Playing with fire. The driving force behind social security is undermined. The reactions to the package of motions that the House of Representatives submitted and adopted in the General Political Considerations are telling. And not so much the reactions from politics, but especially from the business community.
The House adopted no fewer than 27 motions on Thursday evening, which reformed the national budget for a total of 4 billion euros. It was a parade of generous plans to appease voters: from reversing the planned increase in excise duties on fossil fuels to freezing price increases in public transport, from increasing the minimum wage and child benefit to making the telephone number 113 free (for people who want to talk about suicide). The outgoing Rutte IV cabinet stood by and watched, advised against all motions, but no one listens to a cabinet in decline.
And who is going to pay for that? A fierce discussion arose about this the day after the debate. Because the House may be the highest organ in democracy, that does not mean that quickly put together motions are equally well thought out in their effect. You hear that criticism in society and in the outgoing cabinet.
Growth fund is not a grab fund
VVD faction leader Sophie Hermans made two proposals: she does not want an increase in the excise duty on fossil fuels and calls for a structural reduction in the energy tax by 200 million. The required money, a total of 1.4 billion euros, should come from money that remains on the shelf in other departments. In case this cheese slicing method is not enough (and it is not, outgoing Minister Kaag of Finance already warned), Hermans believes that a grab should be made from the National Growth Fund. That is a pot of 20 billion euros, in fact loans, managed by Finance and the Ministry of Economic Affairs and Climate (EZK).
The result was that outgoing minister Micky Adriaansens (EZK, VVD) had to defend her stimulus fund to colleagues from her own party. The government wants to use the fund to stimulate business innovation in the long term. To distribute money you must first earn it, is Adriaansens’ motto. It is not the first time that stimulus billions have been used to close gaps in the budget. Last year, the SGP proposed making the Western Scheldt tunnel toll-free the money for that from the Growth Fund. It is not a grab fund, Adriaansens said at the time.
The VVD now also wants to use the gas revenues to raise the required 1.4 billion euros. The control over the Growth Fund therefore remains limited or is even no longer necessary, EZK believes.
Stacking of loads
Hermans’ motion still has coverage within the money flows that the government itself controls. The other temporary coalition (led by GroenLinks-PvdA) sought cover for their plans mainly by shifting the burden. Lower costs for ‘ordinary people’ – who will go to the polls on November 22 – and higher costs for wealthy people, banks and companies.
For example, according to the applicants, the planned increase in the minimum wage and extra money to keep childcare affordable will be covered by the top rate in tax boxes 2 and 3 increased by 2 percentage points (for example, the tax on savings and investments will be 36 percent). That yields 450 million euros. There will also be a significant increase in the bank tax, which should raise an additional 350 million euros (currently 500 million). As far as the Chamber is concerned, companies that buy back their own shares must pay tax on this: estimated proceeds of 1.2 billion euros. And to reduce energy bills for households, transfer passengers and private aircraft will also have to pay air passenger tax.
Regardless of whether the plans can count on a majority in the Senate, the question is whether everything can be implemented before January 1, 2024. Outgoing Prime Minister Rutte already warned about this in the debate.
There has been criticism from the business community about the way in which the House wants to pay for the plans. The employers’ association VNO-NCW is particularly concerned about the impact that the increase in the minimum wage has on small and medium-sized businesses.
The employers calculate that the statutory minimum wage will increase in one year from 1,725 euros gross per month to 2,157 euros as of January 1, 2024, roughly an increase of 25 percent. According to them, a new increase, as the House now wants, will be counterproductive. This actually drives up inflation and affects many SMEs who are already dealing with high cost increases. A spokesperson: “It is important that we first earn the money before we distribute it. Otherwise we will destroy the engine that drives our livelihood.”
There is also criticism from the banks. They are confronted with a significant increase of 80 percent in the bank tax, which is already on the high side in the Netherlands from a European perspective. “It is naive to think that society will benefit from this increase in taxes. Higher costs for businesses also lead to higher costs for consumers. It is penny wise, pound foolish“, says chairman Medy van der Laan of the Dutch Banking Association. The NVB warns against “Italian situations”, referring to the bank tax that Prime Minister Giorgia Meloni presented in August. As a result, Italian banks went on massive sale on the stock exchange.
On the Dutch stock exchange, banks made significant losses on Friday: investors fear that the bank tax will hit companies hard. ING fell 5 percent, ABN Amro more than 3 percent. The banks receive support from supervisory authority De Nederlandsche Bank. He doesn’t think an increase in bank taxes is a good idea. President Klaas Knot said on NPO Radio 1 on Thursday that politicians should not impose additional taxes on banks in a way “that undermines the resilience of banks.”
VNO-NCW is also concerned about the bank tax: “A higher bank tax leads to higher costs of capital, which in turn has an effect on investments and our future earning capacity. Everyone ultimately pays a price for this impact,” the employers say.
And then there is the proposal to tax the purchase of own shares. That should raise 1.2 billion euros. Outgoing economy minister Adriaansens thinks collecting taxes on the purchase of own shares is a “terrible, terribly bad plan”, she told the ANP.
These are large amounts: In total, AEX companies pre-purchased last year 18.25 billion euros in own shares. For example, ING is purchasing 1.5 billion shares and chip machine maker ASML is buying back 12 billion worth of its own shares over three years.
In the Netherlands, there is now an exemption for companies that buy back their own shares, provided they have paid dividends in the previous five years.
Leader
That regular dividend keeps investors committed to a company for the long term. Buying back its own shares keeps the price stable and ensures that a company does not leave too much cash untouched and thus become an attractive candidate for friendly or hostile takeovers.
Rients Abma, director of Eumedion, an organization that represents the interests of institutional investors, warns that the bill will end up with the companies and not with shareholders.
Abma sees no opportunity for the already overburdened Tax Authorities to introduce a new tax. “The only option to quickly reserve 1.2 billion euros is to abolish the existing exemption.” According to him, this would be a rate of 17.65 percent. Companies can avoid this by moving their headquarters outside the Netherlands.
The Netherlands is not the only country that taxes this ‘share buybacks‘ wants to enter. In the US, President Biden also introduced a tax on share buybacks last year. It amounts to 1 percent and is expected to raise $3.5 billion. In February, Biden proposed raising the rate even further, to 4 percent. According to Anglo-Saxon asset manager Janus Henderson, companies worldwide will buy back $1,300 billion in their own shares in 2022, almost as much as they paid out in dividends. America was the leader with 930 billion dollars.
Finally, KLM is very concerned about the air passenger tax for transfer passengers. In a post KLM CEO Marjan Rintel says on LinkedIn that the Chamber is unfairly rich, because such a tax will lead to a huge drop in the number of passengers traveling via Schiphol.
Next week the House will meet again to discuss all proposals, when the General Financial Considerations will be held. Outgoing Minister of Finance Kaag and her State Secretary Van Rij (Tax, CDA) are expected to try to distribute the burden of all plans differently.
The rules that politicians must adhere to when it comes to the budget and public finances “have not really been applied consistently,” Van Rij said on Friday. He also wants to see whether all proposals, which add up to 4 billion euros in shifts, can be implemented.
Also read this analysis about the General Political Considerations: The real battle with the challengers of the established order is still to come
Correction (September 23, 2023): an earlier version of this article stated that the tax rate in box 3 will increase to 34 percent. The rate will increase to 36 percent, which has been adjusted above.
A version of this article also appeared in the September 23, 2023 newspaper.