Will every company flee the country after the elections and is the current state of capitalism crippled?

Het Financieele Dagblad, Telegraaf
Erasmus School of Economics

In the Netherlands, elections for parliament (Tweede Kamer) are due. After inspection of the party programmes, one thing is sure: corporate taxes will go up. But what does this mean? Is the current form of capitalism sustainable? In two articles from Het Financieele Dagblad and an article from newspaper Telegraaf, Professor of Public Economics at Erasmus School of Economics Bas Jacobs gives some insights.

As can be seen in party programmes and electoral debates, all political parties intend to raise corporate taxes. By how much, is strongly dependent on the party: the VVD (liberal party) wants to raise the burden of corporate taxes by 3.6 billion euros, the PvdA (social-democratic party) by 42 billion euros. All of the other parties can be found somewhere in between these outliers. According to Jacobs, the whole political spectrum tends to shift to the left on this matter. However, this shift can be seen on other subjects as well: raising minimum wages is an important topic for every party and opinions concerning the size of the public sector have become more unified as well. Jacobs: 'the criticism on capitalism, concerns about the excesses of globalisation and the role of international companies has increased for years now. Following this trend, traditionally liberal parties such as VVD and D66 shift to the left. Many liberal-capitalistic ideals of the eighties - lower taxes, less regulation, more free trade - have not always delivered on what was promised, despite the fact that the "recipe book" of capitalism has been adhered to very well. Excesses have increased, which leads to politicians abandoning the ideas of traditional neoliberalism.' 

Negative effects

It seems indisputable that there will be negative effects of this upcoming policy. From an international perspective, the Netherlands has always been very competitive, which made it attractive for companies to establish themselves here. However, will this still be the same in the future? Jacobs explains the effects as follows: because corporate taxes will be higher, entrepreneurs will have less profits left to reinvest into the company. Because of these smaller margins, it becomes more attractive to leave for a foreign destination, where fiscal facilities make higher investments possible without changing anything from an operational perspective: this is possible because the claim on profits will not be as big as in the Netherlands. Furthermore, Jacobs refers to Milton Friedman, who stated that companies are no humans. What he meant by this, is that someone will have to pay for higher corporate taxes, not the 'companies themselves'. Three possible groups that will have to wear the shifted burden, are shareholders, customers or employees. In addition, the idea to raise minimum wages has a negative on employment, since labour will become more expensive for companies to utilise. Jacobs emphasises the general outcomes of capitalism as well: 'a well-functioning form of capitalism rewards hard work, entrepreneurship and taking risks; it doesn't reward monopolies, speculation in real estate and environmental pollution. When these negative phenomena occur, people profit while having done nothing to deserve it, and others pay the bill. This crippled form of capitalism is undesirable in society and leads to inequality and climate problems'.

More information

You can download the full articles from Het Financieele Dagblad and Telegraaf, 2 March 2021, 6 March 2021 and 13 March 2021, above.