OECD critical of Dutch tax system and climate plans

The Dutch tax system is unnecessarily complicated, said the the Organization for Economic Co-operation and Development (OECD) in a new report about the Dutch economy. The criticism from the think tank noted that the complications in the tax system promote inequality. Furthermore, the Dutch government's climate plans are insufficient and too focused on the short term. Conscious investments should be made to give further shape to the future beyond 2030.

The tax rules should therefore be simplified. The OECD believes that the mortgage interest income tax deduction should disappear. In addition, the maximum amount of a mortgage should be further reduced to 90 percent of the purchase price, where it is now 100 percent. This step should ensure that the debts of Dutch households are less high and therefore less vulnerable if interest rates rise further. In addition, the OECD notes that many mortgage interest rates are still fixed for a longer period, which in turn removes some vulnerability.

In general, the Dutch economy is in good shape, but that is partially because of economic support measures, such as the energy price ceiling and the reduction in excise duty on petrol and diesel. Those measures, which are broad and not targeted to specific segments of the population, should be phased out, the think tank said. Instead, there should be schemes aimed at people who really need it.

In that context, the OECD also referenced the benefits system, which should be simplified. It hinders entry into the labor market because people are afraid they will lose certain social arrangements if they start working, or if they begin to work more hours.

The Dutch economy also relies heavily on fossil fuels, the report noted. As a result, the Cabinet's target for 2030 is in danger of being missed. The current plan is a 55 percent reduction in greenhouse gases compared to 1990. The government is mainly focusing on increasing the use of renewable energy. But due to tax benefits and subsidy schemes for large-scale consumers, a great deal of oil and gas is still used because it is cheaper than sustainable energy.

The government should therefore invest much more in research and development into green innovations. In particular, support should also be given to scale-ups, because this is a phase that requires much more money. Without such investments, the energy transition threatens to lose speed after 2030.