Prosperity in the Netherlands is even more skewed than previously thought. Ten percent of the richest Dutch people own 61 percent of the total wealth, if pensions are not included. The top 1 percent even own a quarter of all assets, while the bottom 25 percent actually have more debt than assets.
The conclusions of a group of civil servants who studied wealth inequality in the Netherlands are not tender. Not only did the richest Dutch see their wealth continue to grow in recent years, government policy ensures that the distribution is only becoming more skewed.
How is that possible? In short, having money is the best way to make more money. Most Dutch people get their income from work, in the form of salary, but the richest 1 percent gets a large part of their income from wealth, such as corporate profits and investments.
Income from work, however, is taxed more heavily than capital. Anyone who earns money from renting out a second or third house, for example, pays much less tax than what someone relinquishes to the tax authorities on his or her salary. This also applies to profits from a company. It is also easier for wealthy Dutch people with such income to hire tax advisers and strategically shift their income and assets. As a result, the top 1% pay relatively less tax than Dutch people with less wealth, the study concludes.
Big pensions, expensive houses
Pensions – accounting for almost half of total Dutch assets – are not included in the calculations. It is difficult to determine in advance how much pension a person can ultimately expect. If the pensions were included, more Dutch people would have positive assets.
Nevertheless, the mutual wealth differences do not decrease, even when pensions are included, the researchers note. The poor households get a little more, but the rich households get a lot more. And here too the following applies: building up a pension is tax-friendly, so those who are wealthy and who build up a lot of pension benefit the most.
This also applies to owning a home. More wealthy Dutch people more often own one or even several owner-occupied houses. For the large group of middle incomes, the house is an important form of wealth, but the wealth difference with the group that does not own a house is enormous. For example, a homeowner has on average 14 times more assets than a tenant, partly thanks to favorable government regulations such as mortgage interest deduction. Anyone who takes over a family business or inherits a lot of money also pays relatively little tax under the current tax rates and rules.
The wealthy Dutch do not only owe their capital growth to the government. Economic developments also helped the wealthy group: while wages grow only slowly, until recently the value of houses and investments rose very fast.
Wave of inherited money
Intervention is desirable, the researchers conclude. As long as the wealthy with favorable rates and nimble tricks continue to pay little tax, the government must compensate for this by levying more taxes on labour. High wealth inequality can also disrupt the labor market and make it increasingly important what someone’s starting position is.
Also read: Rutte IV coalition agreement leaves assets untouched
Take the legacies. The group of over-65s has seen its wealth double in the past fifteen years, because this group has grown but also because the elderly are getting richer. Because they can pass on their wealth to their children at a very favorable rate, a large wave of inherited money is in sight. But not all baby boomers have (much) wealth. If you are lucky, you will receive a lot of starting capital. If you’re unlucky, you get nothing. For the younger generations it will therefore become increasingly important in the coming decades how rich their parents are.
The research has been looked forward to for a long time in The Hague. The Rutte IV cabinet is leaving assets untouched for the time being. Prime Minister Mark Rutte (VVD) has responded in recent months to calls from the opposition to do something about wealth inequality by referring to the research, which was led by economist Laura van Geest. Van Geest was director of the Central Planning Bureau for many years and is now chairman of the Netherlands Authority for the Financial Markets.
The data is now inescapable. Now it’s up to politicians, the report concludes: “The choice is yours.”
A version of this article also appeared in the newspaper of 9 July 2022
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