The Dutch tax system needs a major overhaul and that means lower taxes on wages and the end of mortgage tax relief, central bank chief Klaas Knot has said in an interview with the Volkskrant.

In addition, something needs to be done about the complexity of the current system, Knot said. “Over the years so many exceptions have been made for certain groups that I have to ask myself if our tax system still serves the public interest,” Knot said.

“Is the aim to collect as much tax income as possible at as low a cost to society to pay for public services, or have taxes become a summing up of political interests?”

There is no evidence that some 85% of the deductions, exemptions, discounts and benefits actually achieve their aims, the central bank chief told the paper.

The Netherlands, compared with other countries, has high rates of income tax and the lowest effective tax on assets in the OECD, he said. But the one measure he would like to see disappear is mortgage tax relief which, he said, is driving up house prices.

Reforming that, Knot said, would allow income tax to then be cut. “The biggest driver to get people to work longer hours is cutting taxes.”

Knot, the IMF and other think tanks have called repeatedly for mortgage tax relief to be phased out.

Currently home owners can offset the part of interest they pay on their mortgages against tax for a maximum of 30 years, if they have either a linear or annuity-based mortgage. In 2024, the deductible mortgage interest rate was 36.97% but is gradually being reduced.