The Dutch weekly news magazine De Groene Amsterdammer has published an extensive reconstruction about the downfall of Box 3, the tax on wealth that resulted in billions in losses for the Dutch government. Peter Kavelaars, Professor of Economics of Taxation at Erasmus School of Economics, is quoted several times in the article.
Outlandish constructions and chaotic regulation
Kavelaars explains how wealth taxation spiralled out of control in the late 1990s. Banks and insurers at the time devised ‘outlandish constructions’ to convert taxable income into untaxed profits. Legislators were left desperately trying to catch up, which turned the rules into chaos.
Box 3 initially seemed like a solution: ‘incredibly simple,’ as Kavelaars calls it. A tax return could be explained in a single lecture and constructions were hardly possible anymore. But the system was also unfair. Together with dozens of other professors, Kavelaars warned the Dutch House of Representatives at the time that the levy conflicted with taxpayers’ sense of justice. A prediction that unfortunately came true.
The gap between fiction and reality
When the financial crisis struck, the gap between fictitious returns and reality became painfully clear. As early as 2013, Kavelaars pointed out in a parliamentary committee that savers achieved on average no more than 0.5 per cent return, while the tax authorities clung to 4 per cent. The legislator, however, opted for the state treasury rather than fairness.
The conclusion drawn by Kavelaars and his colleagues is sobering: Box 3 was practically workable, but legally and socially unsustainable. The current multi-billion loss for the treasury had long been foreseeable.
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For more information, please contact Ronald de Groot, Media & Public Relations Officer at Erasmus School of Economics: rdegroot@ese.eur.nl, +31 6 53 641 846.
