Save €35 bn by scrapping ineffective tax breaks: civil servants

Cutting some ineffective tax breaks could generate up to €35 billion for the Dutch treasury, civil servants at the finance ministry have said in a new report. The amount is equivalent to €2,000 per head of the Dutch population.

The report, sent to parliament on Monday, outlines options for the next government to overhaul nearly 200 tax regulations, which together account for tax cuts totalling at least €167 billion in a year.

Of the 125 schemes that have been reviewed, 53 have been assessed as ineffective or inefficient. Reducing or abolishing these would bring in up to €35 billion in extra tax revenue, the officials said.

Among the measures civil servants suggest are ending the 9% VAT rate, which the report describes as an expensive and complex way of helping low-income households. Scrapping it could save €16 billion.

Tax breaks for entrepreneurs — including the self-employed allowance, start-up allowance and small business exemptions — could also be trimmed, saving €8 billion. The money could be used to lower corporate tax rates, reduce employer contributions or provide targeted innovation subsidies.

The report also calls into question mortgage interest tax relief, a long-standing fixture of Dutch tax policy, but one which has been widely criticised by economists for pumping up house prices.

The current government coalition pledged to leave it untouched, but the report suggests that with some mortgage interest deductions expiring in 2031, it may be time to phase out the benefit altogether. This could raise €9 billion to cover income tax cuts for all.

Other schemes the report highlights include the tax-free allowance on charitable donations, and special tax breaks for farmers and for family-owned firms, all of which have faced resistance to reform.

It will be up to the next government whether to take on any of the suggestions, but some are likely to be included in political party manifestos for the October election campaign.