The Dutch cabinet is planning to increase the mortgage tax relief rate for people on higher incomes, while cutting it slightly for people earning less than €38,441 a year from next year, the Financieele Dagblad reported on Monday.

Economists, who have been calling on the government to reduce the tax break, say the move is only likely to further boost the overheating housing market.

Mortgage tax relief in the Netherlands has been cut steadily since 2013, after experts criticised its impact on house prices because it allows people to borrow more. Dutch central bank chief Klaas Knot and the International Monetary Fund are among those calling for further cuts.

The tax rate reduction has meant that for the past two years, all income groups can deduct the interest they pay on their mortgages at the same rate.

This year the mortgage deduction tax rate is 36.97% for everyone but that will change in 2025 because of the government’s decision to introduce a new tax bracket of 35.82% on income up to €38,441.

That means lower income households can only deduct their mortgage payments at the new, lowest rate, while higher incomes will benefit from a rate of 37.48% in what will then be the second tax bracket.

Public sector economics professor Raymond Gradus is urging the senate to stop the controversial measure going through.

The four parties in the coalition had agreed not to make changes to mortgage tax relief.

If the cabinet had opted to make 35.82% the basic rate for everyone, it would have raised €400 million for the treasury, Gradus said.

He also expects comments from Brussels. The Netherlands had agreed to reduce mortgage tax relief to around 37% as part of the EU’s coronavirus recovery plan. The Netherlands is still owed €4 billion by Brussels from the economic recovery plan, the FD said.