Fiscal policy was supportive in 2015 and is expected to be roughly neutral in 2016. The recovery helped keep the headline deficit relatively stable in the 2.1–2.3 percent of GDP range in 2013-15, even as the structural balance eased by half a percentage point. The draft 2016 budget reduces labor and income taxes by € 5 billion (about 0.7 percent of GDP) while pursuing the expenditure-based path of fiscal consolidation. On current staff projections, general government debt will decline from 69 percent to 67 percent of GDP. Both the headline deficit and the pace of debt reduction are comfortably within the Stability and Growth Pact (SGP) limits.
There is fiscal space in economic terms, but perhaps less in SGP terms. Staff calculations show a structural balance that is well within the medium-term objective (MTO) of -0.5. However, we note that the authorities find that the space vis-à-vis the MTO is fully used under the European Commission approach. Should this change or if there is still a significant output or employment gap in 2017, we would urge the authorities to make use of this space to support the recovery. In the medium- and long-term and as the output gap closes, consolidation should resume to rebuild buffers, including by reducing public debt to below 60 percent of GDP.
Structural Policies—Important Reforms Implemented, but a Large Outstanding Agenda
An interrelated set of policies has given rise to an overly leveraged Dutch economy over time. The tax system has a bias toward debt rather than equity for both households and firms. The high pension savings of most workers promote security in old age, but the associated high contributions together with the high labor tax wedge can leave younger households cash-constrained. These constraints, together with the tax incentives for home ownership and mortgage debt and the absence of a well-functioning private rental market, promote premature home ownership and high household leverage. This in turn leaves the real economy vulnerable to shocks. There are also issues in the pension system that need to be addressed for their own sake, and the rapid rise in the share of the self employed suggests tensions in labor market policies that need to be addressed. The government has taken important steps to address the inefficiencies in the housing market, support indebted households, address financial sector problems, and implement pension and labor reforms. However, there is more to be done, and because of the interrelated nature of the policies and their economic impact, there is merit in pursuing the reforms in tandem.
Tax Reform – Promoting Growth and Employment
Tax reforms could increase potential growth, enhance fairness, and improve efficiency. Despite progress in recent years, the Dutch tax and benefit system remains unbalanced; large efficiency gains could be achieved by shifting the tax burden away from labor, and towards consumption and capital income, in particular on residential property ownership. This makes some sense on distributional grounds as well; Dutch households have high net wealth (excluding pension entitlements) on average, but it is unevenly distributed and most of the assets are in illiquid real estate and pension accounts. The authorities have recently taken a number of steps in the right direction. For example, it has been decided to gradually phase out the large subsidies on housing investment and pension savings and to roll back some of the regressive features of the taxation of capital income. Also, next year's €5 billion labor tax cut package is mainly targeted at female workers and low-wage earners – the most responsive groups – which should help create new jobs and increase hours worked. But more could be done and faster. The large subsidies on home ownership and pension income could be phased out more quickly than currently envisaged, allowing a budget-neutral and growth-enhancing rapid reduction of the labor tax wedge. Moreover, important tax revenue and efficiency gains would result from harmonizing the currently fragmented capital income and value-added tax schemes. Revenue shortfalls from corporate tax reforms could be offset through broadening the VAT base and unifying VAT rates.
The tax system favors debt and has contributed to overly-leveraged households and firms. Interest deductibility has favored debt over equity financing, resulting in excessive leverage, exacerbating business cycles and potentially threatening financial and fiscal sustainability. Future tax reforms should minimize the so-called debt bias. The Dutch authorities have already taken some measures to foster a gradual deleveraging in the housing sector (e.g., decreasing loan-to-value (LTV) ratios and mortgage interest deductibility). Similar measures should be taken in the corporate sector. For example, an allowance for corporate equity (ACE) could be introduced and calibrated so that equity and debt finance become fiscally neutral to encourage equity building. A similar type of allowance could in principle also be introduced in the housing sector.
Bron: IMF
Informatiesoort: Nieuws
Rubriek: Belastingrecht algemeen, Internationaal belastingrecht
H&I: Actualiteiten
5