The new cabinet doesn’t use the word ‘mortgage interest relief’ at all in its newly announced plans. However, the European Commission did ask the Netherlands to cut down on this relief plan. How is the government going to achieve this? Professor of Public Economics at Erasmus School of Economics, Bas Jacobs, explains the situation and offers alternatives to reform the tax system.
Numerous homeowners will exhale a sigh of relief: the mortgage interest deduction will not be further phased down. However, a more rapid phase-out was a condition of European backing for covid-19. The Netherlands must take into consideration the guidance that the European Commission provides to all Member States each year when presenting the plan. These suggestions have been developed after consultation with Dutch authorities. For years, our country's primary goals have been to fix the labour market and housing market. And in the latter situation, the Commission believes that eliminating the mortgage interest deduction would be very beneficial.
The Dutch economy is particularly susceptible as a result of our huge housing debt. 'When the economy is struggling, the housing market suffers, and vice versa,' Professor Jacobs argues. That is why the Netherlands often remains in a state of crisis for a longer period of time than other nations. Rutte IV seems to be anticipating a different approach to meeting the Commission's requests. It is not required to implement all suggestions; the Netherlands has the option of making a selection, which is now being discussed with the Commission. The incoming government believes that labour market reforms and other housing market initiatives will enough to persuade the Commission.
Jacobs believes that the cabinet may be correct. If Brussels asserts that 'this is a stringent criterion,' the Netherlands will have a problem. However, Jacobs notes, a solution is often sought. 'The Netherlands may be able to reach an agreement on another issue'. Jacobs concurs with the European Commission that the Netherlands' housing market must be reformed. Although he believes that eliminating the mortgage interest deduction is not the answer. It would be preferable if ones home were taxed similarly to stocks and savings in Box 3, by progressively raising the tax on house ownership and capping the deductible for mortgage interest at 30%. Jacobs: 'The motivation to get as high of a mortgage as possible would be eliminated as well. And the government will lose budgetary leverage over how individuals accumulate wealth.'