The tax on capital assets is penalising the savers and investors the government so badly needs, writes Jan Maarten Slagter.

The Dutch need to curb their spending. Thanks to the combined mortgage debt, the private sector’s books are sadly and, compared to almost any other country, spectacularly unbalanced. Falling house prices are an added macro- economic risk.
At the same time, the banks need to increase their reserves in order to weather the next storm. Businesses will have to look for alternative sources of finance.
The cabinet, meanwhile, is getting ready to launch another round of cutbacks. In short, society needs savers and investors in order to finance badly-needed economic growth.
Saving
Oddly enough there is no activity the tax office dislikes more than saving. The VEB has found that the tax on capital assets (vermogensrendementsheffing) has not done savers any favours since it was introduced 11 years ago and should perhaps be properly called a ‘tax on diminishing assets’. Investment yields have steadily remained below the fixed 4% taxation rate.
Most investors haven’t come close to a 4% yield since the new ruling came into effect in 2001. Some have even seen their capital value shrink.
To have a look at the asset tax on investments, the VEB put together three lots of typical investment portfolios: a defensive portfolio, a neutral portfolio and a bullish portfolio.
Portfolios
The baskets were filled with common stock funds and income bond funds popular with private investors and which have been around for at least 11 years. The results were pitiful.
None of the investors managed to equal or exceed the assumed annual yield of 4%. The neutral and bullish investors even suffered a post-tax loss. The defensive investor came out best and clocked up an annual capital growth of 1.34% over the past eleven years.
The positive yield on the income bond funds combined with the savings at the bank (80% in all) more than compensated for the loss on stocks, resulting in a lower yield. The neutral and bullish investors invested more heavily in stocks. But over the last 11 years, a higher risk has not been compensated for by higher yields.
Treasury
The neutral portfolio result came in at an annual 0.53% while the bullish portfolio dived into the red by 0.28%. After the 1.2 % capital assets tax, the defensive portfolio was the only one to keep its head above water if only by a tiny 0.14%. The other two portfolio performances resulted in a negative capital growth of 0.67 and 1.48% respectively after the tax has been deposited in the state coffers.
In short, an activity that helps society is being punished disproportionately by the tax authorities. That can’t be right. The VEB’s findings are grounds for a complete evaluation of the system. Parliament is discussing the tax agenda in 2012, a good opportunity to take a close look at this unfair capital yields tax.
Why not link the assumed yields percentage on the progressive 10-year average of a portfolio basket or Dutch 10-year bonds? Down with the diminishing capital tax!
Jan Maarten Slagter is director of the Dutch investors’ association Vereninging van Effectenbezitters
www.veb.net