Public hearing House of Repr. II
September 2014, the Dutch State Secretary for Finance has published a letter to announce a fundamental review of the tax system. March, 25, 2015 Femke Groothuis of The Ex’tax Project was one of fifteen experts to be invited by Dutch government to advise on the tax review.
The public hearing of the finance committee took place at the House of Representatives. In her address to the committee (see below), Femke put forward the study recently published by The Ex’tax Project in cooperation with tax experts of Deloitte, EY, KPMG Meijburg and PwC, as summarized in the position paper [pdf] that was provided to the members of parliament in advance.
Femke received a number of questions on the international dimension, and specifically the opportunities to cooperate on EU level. Also, the role of VAT was discussed.
National news service NOS reported [translated*]: According to Femke Groothuis of Ex’tax, the environment should be central to the new tax system. “The Netherlands and other European countries need to become ‘circular economies’; economies based on reuse of natural resources and products. Recycling is labour-intensive, and therefore, tax on labour needs to go down.”
Some tweets (in Dutch):
“Chairman, members of the finance committee, thank you for the invitation to join this conversation. My name is Femke Groothuis. I am the Director of The Ex’tax Project Foundation. In 2014, with tax experts of Deloitte, EY, KPMG Meijburg en PwC, we have published a study on the possibilities to shift taxation from labour to natural resource use.
The high tax burden on labour in the Netherlands provides incentives to entrepreneurs to work with as few employees as possible. Labour-intensive activities are outsourced to low-income countries, and, as much as possible, labour is made redundant in production processes. 4.9 Million Dutch are now depending on benefits in our social system.
Natural resources (such as water, clean air, metals and minerals) are generally left untaxed; we use them unrestrained, while climate change, water scarcity, resources supply issues and air pollution are causing conflict and destabilization around the world.
Taxes on labour are more distortive to the economy than taxes on consumption and natural resources. International institutes such as the OECD, IMF, European Commission and the Eurogroup therefore support a tax shift.
The New era report provides, amongst others, an overview of the extensive international literature on this topic as well as a ‘Toolkit’ that demonstrates the possibilities of a tax shift. Based on the toolkit, the study shows how the Netherlands could realize a € 34 billion tax relief on labour. This tax reduction is financed by applying the ‘polluter pays’ principle. Pragmatic choices enable these measures to go hand in hand with a simplification of the tax system. Some measures require international cooperation.
The package is not meant as a blueprint but shows the direction, and which long-term goal should be served. Obviously, based on agreement on the long-term perspective it will be much clearer which specific measures would fit that goal.
A circular economy enables growth based on clever use of natural resources. Such an economy requires business models, such as repair, recycling and innovation, which are labour-intensive. Unfortunately, the current tax system is a barrier for introducing and scaling up this kind of activities.
More jobs and clever use of resources are exactly what this era needs.
The report and follow-up projects are opportunities to take a fresh perspective on taxation. The working group would advise the committee to take into consideration the major social and ecological developments, including the megatrends unfolding outside of the Netherlands.
The report can be found online and copies are available for you here. I’m more than happy to answer any questions you may have.