The simplification of the tax system may result in a bigger gap between rich and poor, warn Emile Roemer and Farshad Bashir.

You have to hand it to them. It takes guts to propose measures that will reduce the burden for the rich at a time of massive cutbacks. But this is exactly what the Van Dijkhuizen committee did on Monday. This little windfall is financed by cranking up the pressure on entrepreneurship and taxing consumer spending even more – all this in a time of economic shrinkage.

Labour has already reacted positively. For us it would be unthinkable to go along with the committee’s recommendations, after years of fiscal perks for large companies and ever more stringent tax demands on people on low incomes.

Kees van Dijkhuizen, himself a banker, and his committee looked into a simplification of the tax system and came up with a series of measures to increase the gap between rich and poor instead.

Collective burden

Here’s a summary: the committee recommends only two tax brackets for income tax. These brackets – 37% and 49% – will result in more tax on lower incomes and less on high incomes.

It has long been said that higher incomes provide a goodly chunk of income tax revenue and that is true enough. However, if we look at the total burden on these incomes the percentages are not very different. According to CBS researcher Rens Trimp and economics professor Flip de Kam, each income group spends about 40% of its income on the collective burden. The time when the biggest shoulders carried the heaviest loads has long since passed in the Netherlands.  

The Dutch tax on capital is already half that in Belgium or England. And now Van Dijkhuizen and his cronies are proposing to lower it even further. Of course Van Dijkhuizen is right to say people haven’t had more than 4% interest on their savings for a long time, but why not look at the tax on capital as a whole?

If this was replaced with a capital gains tax, savings would be spared and people would only pay tax on the profit actually made on capital. Capital tax would be a progressive and, as such, a fairer tax. A separate tax on capital exceeding €500,000 could also be considered.

VAT

The proposed 2% hike in VAT is equally ill-conceived. Low incomes spend a larger part of their income on consumer goods and so pay the price for this tax increase, which will also put further pressure on consumer spending. This effect will only be reinforced by the committee’s proposal to increase not only the normal VAT rate but also the lower rate on food, from 6% to 8%. This is putting a brake on spending when consumer confidence is already at rock bottom. The hike will also be the final straw for many entrepreneurs who are struggling already. 

After years of pension cuts, cuts in spending power because of increases in healthcare costs and other fiscal ‘simplifications’, the government is again picking the pockets of the elderly by having them pay pension premium payments of up to 18% after they have reached pensionable age.

Entrepreneurs

Last but not least, the committee has another unpleasant surprise up its sleeve for the entrepreneurs of this country. Fiscal measures to help starter companies will be abolished and taxes paid by a director/major shareholder will go up smartly as well. Meanwhile company tax for big companies has been getting steadily lower. The self-employed and the small and medium-sized companies are paying for the tax perks of the multinationals.

Van Dijkhuizen and his committee are deliberately proposing a series of measures which will widen the gap between rich and poor even further. The elderly, small businesses and people on low incomes will be paying the bill for the fiscal advantages given to investors, the wealthy and big business. It is another step in the destruction of our progressive tax system.

In a time of crisis and low consumer confidence, extra spending power for people on low incomes would be a great boost to economic recovery. But Van Dijkhuizen refuses to change tack and knowingly makes the gap between rich and poor wider still.

Emile Roemer is the leader of the SP. Farshad Bashir is an SP MP.

This article was published earlier in the Volkskrant.