Nobody likes it anymore, but how do you get rid of it? For years, politicians in The Hague, from left to right, have wanted to abolish the surcharges. The system of advances, which then have to be corrected again, is complex for implementers. And those who make a mistake, or see their situation change, sometimes suddenly have to pay back a lot of money.
This leads to “acute financial stress”, says Peter Heijkoop, alderman for poverty in Dordrecht. “For the vast majority of people who have debts, benefits play a role.”
After the Supplementary Affair, this theme came to the top of the political agenda. The Rutte III cabinet resigned as a result. Rutte IV wrote in the coalition agreement: “We have the ambition to abolish the allowances.”
Suddenly scrapping all surcharges seemed impracticable to the government. But Rutte IV wanted to make a start. One of the four, the childcare allowance, will disappear and be replaced by making childcare almost free. And the rent allowance is “simplified”.
But these first two steps alone are difficult to get off the ground. On Monday, the Council of State published hard advice on simplifying the rent allowance. Its future is uncertain. Making childcare almost free also encounters obstacles and is likely to be delayed.
It has to change, thinks almost every director and politician. So why aren’t reforms moving forward?
“Risky”, that is what the Council of State calls it the government proposal to simplify the rent allowance. Most tenants lose out, mostly people in a ‘vulnerable position’.
A painful observation, because the renovation was intended to help citizens. An initial simplification could bring a later abolition of the benefits system closer. A system that has grown into a byzantine bureaucracy for both recipients and performers.
The undisputed low point was the childcare allowance affair, in which the risks of combating fraud, high recoveries and complicated administration came together. In many cases, victims have to wait even longer for compensation than expected, reported NRC Thursday. It put the urgency of a new benefits system back on the map.
Read also: Recovery from the benefits scandal is stalled by a culture of fear and internal chaos
But other disadvantages may weigh even more heavily for policymakers in The Hague. The allowances also create unintended incentives: those who earn more will receive less allowance. As a result, working an extra hour sometimes hardly leads to extra income, or even to a loss of income.
Moreover, the surcharges do not reach everyone. The last measurement showed, for example, that 10 percent of the group entitled to rent allowance had never applied for it. For the child-related budget, this is even 15 percent.
The tricky thing: that same allowance system is crucial for many to stay out of financial misery.
Money machine of 15 billion
Incidentally, the allowances are not only there for a small, disadvantaged group: the chances are greater in the Netherlands that you will receive an allowance than not. In total, 5.5 of the 8 million households receive at least one of the four allowances. By far the largest is the healthcare allowance, which reaches 4.5 million households.
The benefits department of Finance is in fact a huge money machine that spews out more than 15 billion euros annually to provide people with income support.
In the Netherlands, 5.5 of the 8 million households receive some form of benefit
And so an outspoken opponent of the allowance system such as D66 MP Steven van Weyenberg also says: “It is indispensable in its current form. If you stop tomorrow, people with low and middle incomes will fall through the ice.”
This partly explains why adjustments are so complicated: every shift has enormous consequences for many Dutch people. Removing allowances without otherwise supplementing the income of the recipients or reducing their costs is not really an option. Vulnerable households will then run into problems.
And that’s where the rent allowance goes wrong. Until now, this is calculated on the basis of the income of the tenant and the exact rent. The new plan assumes a standard rent that is the same for everyone: 520 euros. It was that easy, was the thought, because the simpler the allowance, the sooner you know where you stand.
Only: two-thirds of benefit recipients will lose out as a result of the change, as it turned out last year calculations of budget institute Nibud. Those who pay much more than the set 520 euros in rent will soon have less left.
Those adverse effects were known to the government parties of Rutte IV. At the formation table, they decided to dampen the shock of the lower rent allowance with an increase in the minimum wage. “That rent allowance was not for nothing in a basket of measures,” says Van Weyenberg.
Until the basket was emptied earlier. Rising energy prices and inflation led the government to increase the minimum wage this year. As a result, it is no longer a compensation measure, and the sum is worse. Minister Hugo de Jonge (Public Housing, CDA) is now going to ‘weigh the standard rent of 520 euros again’.
Which doesn’t help: the cabinet wanted the renovation of the housing benefit to remain ‘budget neutral’. Apart from implementation problems, it was one of the reasons why the coalition did not immediately decide to abolish it. That would be too expensive if everyone had to be compensated.
Biggest problem allowance
The childcare allowance is even more complex than the rent allowance. All kinds of factors determine whether you are entitled to this and what amount you will receive: whether you and your partner work, what you earn, the number of childcare hours and the rate of childcare. If you forget to pass on one change, the advance will no longer be correct.
And as a result, about 80 percent of recipients receive a correction afterwards, according to official research in 2019. Much more than with other allowances. More than half of them have to pay money back, the rest receive a supplementary payment. It is not for nothing that the cabinet wants to abolish this problem allowance first.
Almost-free childcare should make the allowance superfluous from 2025. Working parents then pay only 4 percent of the costs themselves. The government transfers the rest to the childcare organization.
Financially, only the higher incomes benefit from this operation. The lowest incomes are already reimbursed at 96 percent, just like in the new system. Their advantage lies mainly in the predictability and simplicity. The allowance for higher incomes is now even lower. It is therefore expected that they will benefit in particular and bring their children to childcare more often.
The big question is: can the shelter handle that? Staff shortages are already unprecedentedly high, months-long waiting lists are the norm.
Read also: Who will pet that baby three more times on his head? Childcare is facing an acute staff shortage
Even more sensitive is the risk that low incomes will, unintentionally, deteriorate. Many experts warn against this.
Here’s the thing: the government reimburses up to a maximum hourly rate. And some shelters will increase their rate above that limit, experts expect. Parents with a middle or higher income can still easily afford this, because the subsidy means that they are still cheaper than before. And part of the childcare sector is in the hands of private investment companies that strive for high profit.
For the lowest incomes, childcare then becomes unaffordable, fears the Social and Cultural Planning Office. Or there will be a dichotomy between reception locations for rich and poor, resulting in growing inequality of opportunity. Minister Karien van Gennip (Social Affairs, CDA) is keen to prevent this. She is now investigating whether it is wise to impose price or profit restrictions on the sector, for example.
It shows how scrapping one allowance can have major social consequences. It is not for nothing that Van Gennip officials wrote in a memorandum that the planned implementation date of 1 January 2025 is very uncertain. They drew up a timeline with 21 intermediate steps. Half of them contain comments such as: ‘very ambitious’. Or: ‘Very short for a complex system overhaul’.
‘Compartmentation’ about ministries
As Minister of Social Affairs, Van Gennip decides on the childcare allowance and the child-related budget, just as Hugo de Jonge, as Minister of Housing, takes care of the rent allowance and Ernst Kuipers (Public Health, D66) is responsible for the healthcare allowance. Meanwhile, VVD member Aukje de Vries, the State Secretary for Customs and Benefits, is involved in the implementation of the benefits from the Ministry of Finance.
Alderman Heijkoop from Dordrecht does not like this ‘compartmentalisation’. “Responsibility is divided, with all those different ministries. Then they look at a loose part, they run into a wall again at one of the other parts.”
According to Heijkoop, also a director of the Association of Netherlands Municipalities, this fragmentation stands in the way of greater ambition. He would like the government to make all allowances superfluous. “It all starts with income. You have to have a vision for that.” Heijkoop, a CDA member, advocates raising the minimum wage and benefits again. “Then you don’t have to stick plasters anymore.”
And even that is not enough, says Hans Borstlap. In 2020, the former top civil servant led a committee that advised the cabinet on new rules regarding work. He also referred to the allowances as a source of uncertainty and an obstacle for people who want to work more. The question that, according to him, is all about: “Why do we actually have allowances?”
His answer: because wage growth has lagged since 1982. At that time, employers and trade unions agreed on ‘wage moderation’ in the Wassenaar agreement. “The main question, of course, is: why should wages not be sufficient to cover the basic cost of living? That is actually the first question.”
Hans Borstlap’s vision looks like this: stop the benefits and ensure that all wages, not just the minimum wage, go up sharply. Employers must pay higher salaries, and the government must ensure that employees have more net income through lower taxes.
Employers also have an interest in higher wages, says Borstlap. “They complain bitterly that they have too few people. Well, here’s a solution that will get more people up and running.”
It’s a gigantic operation. And it may cost a bit. As far as Borstlap is concerned, the tax on wealth will also be increased, so that the tax on labor can be reduced. Van Weyenberg proposed in its own indexation plan to scrap the mortgage interest deduction completely. As far as he is concerned, in the next term of office all allowances will be made superfluous by a higher minimum wage and lower taxes.
Read also: Delete allowances? That has a price
“Courage sometimes sinks into your shoes,” says Pieter Grinwis, Member of Parliament for the Christian Union. He also submitted a plan to abolish all surcharges. “Abolishing surcharges is a mix of sweet and sour.” The compensatory measures give people something, the abolition takes something away. “It is politically very complicated. One is attractive to support, the other is not.”
When abolishing all allowances, which are tailored to your personal situation, people will always be disadvantaged, that seems inevitable. Compensation via tax or the minimum wage are much less targeted. Unfortunately, that is the price, Van Weyenberg concludes: “If you never want to accept that someone is even slightly worse off, you will not get there.”
A version of this article also appeared in the February 4, 2023 newspaper