Klaas Knot was there last Sunday on television at broadcaster WNL, but nicely tempered the concerns. “I understand that people are scared to death.” Many worried telephone calls had come in at De Nederlandsche Bank, President Knot said. Because DNB had proposed to tax the equity of the owner-occupied home as capital (in box 3 of the tax system), and to abolish the mortgage interest deduction.
On Tuesday, the unrest had not yet subsided. DNB posted a message on Twitter: “Our proposal to move the owner-occupied home to box 3 is causing a great deal of concern.” It included a link to an issue on the DNB website to explain exactly what the central bank had meant. Important according to DNB: the plan must be introduced gradually over 20 years. Also important: the tax money that the government collects must be returned from DNB in the form of lower rates of wealth and income tax.
It just goes to show: for many Dutch people there is little more worrying than the suggestion to tax the value of their own home (after deduction of the mortgage) as an asset. And that is quite understandable, because one thought will be: how am I going to pay for that? Wealth in stones is not money in the bank account yet. This certainly applies to older people with a small pension and a high equity value.
Knot allayed those concerns by saying that older people in particular come out relatively well. DNB carried out ‘an initial accounting simulation’ to see what the purchasing power effects of the plan are. According to DNB, most households would even improve a little on average. Young homeowners with expensive houses are on the decline.
Does it help? DNB provoked additional anger by suggesting that houses are so expensive because of the tax benefits of homeowners. Yes, bye, prices are high because interest rates are so low, it was said from various quarters. And that is due to the generous money policy of the European Central Bank, and therefore of DNB!
The DNB plan to tax the equity of the house is playing with electoral fire
DNB’s proposal is neither new nor unique. Many economists have made similar proposals, based on the idea that stimulating high mortgage debt through tax breaks is not good for the economy and not good for the housing market. In addition, it creates a skewed treatment of tenants and homeowners.
DNB now explicitly links the plan to the shortage of affordable housing. Building more houses is also necessary, but not enough, according to DNB. And yes, low interest rates play a role: people can borrow more at lower monthly payments. But prices are rising here more than elsewhere in Europe, Knot said in de Volkskrant. This madness is made in Holland.
Well this is a nice idea, but will it also fly politically? Of the four parties that are now trying to form a cabinet, only the ChristenUnie wants to tax its own home in box 3 (with an exemption of up to 375,000 euros). D66 wants to abolish the mortgage interest deduction. Should the four consider the DNB plan at all, they will need more guidance than a ‘first simulation’ that only shows rough averages. Because it is clear that this is playing with electoral fire. You do it mainly for newcomers to the housing market, not for current homeowners. It shows that once policy is in place, it is extremely difficult to change – due to immense vested interests.
Marike Stellinga is an economist and political reporter. She writes about politics and economics here every week.
One’s own house: a political quagmire
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