A capital issue-Inequality in the Netherlands

[daring dude]

IF THERE is one country that is proud of its efforts to fight inequality, it is the Netherlands. Dutch pre-tax incomes are by some measures nearly as skewed as America’s, but once the government has chopped them up and passed them around, they are among the world’s most egalitarian. Yet when it comes to wealth, researchers have found that the distribution is among the most unequal in Europe. This and Thomas Piketty’s book “Capital in the 21st Century” have kicked off a new debate over inequality in the Netherlands.

The stage was set last year, when an official commission suggested that the Netherlands should cut income tax. Currently the 42% bracket starts at just €33,364 ($45,387) a year, and the 52% bracket at €56,532. But other tax breaks favour wealth. There is no capital-gains tax; instead, there is a 1.2% fixed tax on financial assets over €21,139. And mortgage interest is tax-deductible, a big advantage for high earners with large houses. A report this month by the Scientific Council for Government Policy duly found that the top 10% of Dutch households own 61% of the country’s net wealth. That is short of America’s 75%, but it is hardly egalitarian (see chart). And the figures corroborate a 2011 study of 13 European countries that found the Netherlands had the most unequal wealth distribution after Poland.

The Labour Party leader, Diederik Samsom, has jumped on all this to announce his plans to offset any income-tax cuts by raising wealth taxes. He has made the Piketty-like argument that today’s economy makes it “easy to get rich with capital, but not with labour.” But the Liberals, the senior partner in the two-year-old coalition, feel they have already made too many redistributionist concessions to Mr Samsom. Their leader in parliament, Halbe Zijlstra, has attacked the wealth-tax idea, calling it a “punishment for good behaviour”. He wants to offset income-tax cuts by paring benefits, which are so broad that some 90% of Dutch people collect at least one.

Economists also point out that the figures exclude pension funds that are proportionately larger than in other countries. Factoring in middle-class pensions would smooth the wealth distribution. Others note that the housing-debt bubble distorts the numbers: many middle-class households took out large mortgages to take advantage of the interest deduction, but with house prices down 20% from their 2008 peak, they may have low or negative net wealth.


The row has forced the government to delay its tax proposals. Relations inside the coalition have soured, but the two parties are too unpopular to do anything that might topple the government and mean a fresh election. The battle is part of a centuries-old struggle between two Dutch visions of the national identity: on the one hand a liberal, business-friendly country that invented modern capitalism, on the other an egalitarian, labour-friendly social democracy. That struggle is unlikely to be over soon.