Back to basics, money for everyone

In the reform of the Tax Administration Authority (Belastingdienst) in the Netherlands reducing complexity should be central. Political economist Jeroen van Gennep advocates simplicity through basic income.

Published in:

• Het Parool, national newspaper of the Netherlands, on January 13th 2020 in the paper edition and online

• Dagblad van het Noorden, regional daily newspaper circulated in the provinces of Groningen and Drenthe on January 17th 2020 "Back to basics and money for everyone" online

• Leeuwarder Courant, regional daily newspaper circulated in the province of Friesland on January 21st 2020 “Basic income makes taxes simpler" online

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The Tax Administration Authority is at the beginning of one of its largest, and most likely longest, change processes to date. This weekend, Finance Minister Wopke Hoekstra announced that the Customs and Benefits departments will be split off. This as a result of the Dutch benefits scandal, in which thousands of families were wrongly accused of fraud with childcare benefits.

“Our tax system is not only outdated but also unnecessarily complex.”

Will this change also bring the much-needed improvements? The great danger is that going from one to three tax administrators will only create more complexity in our already confusing and unclear tax system.

Secretary of State Menno Snel, who saw his departure in December, was right when he said in the summer of 2018: “A little bit of complexity is not bad, but at the same time there is a limit to it. If the complexity is so high that the tax advisor can no longer even explain it to his clients, then we really have a problem.” We must conclude that if the tax advisors cannot make sense of it, it is even more so impossible for the ordinary citizen.

Mismanagement

The  Tax Administration Authority has 30,000 employees. As a civil service, the service provides more employment in the Netherlands than the three largest Dutch multinationals combined. Hopefully, creating employment through a large bureaucratic apparatus is not a goal in itself for the government.

What is the reason for the large number of civil servants at the Tax and Customs Administration? The short answer, and also the root cause, is the same aforementioned complexity in the tax system. It is certainly not straightforward, as a glance at the benefits in the current system shows: rent benefit, healthcare benefit, child-related budget, and childcare allowance.

Our tax system is not only outdated but also unnecessarily complex. The main cause is the political desire of Dutch governments to keep median purchasing power development at least equal to zero. As CPB Director Laura van Geest, who will be departing on February 1st, already pointed out: “The precise control of tenths [percentile increase in purchasing power] ensures that ever more income schemes are created or adjusted, which results in a complex tax system.”

Our system not only needs to be overhauled, it can be. Regulations such as the AOW (Algemene Ouderdomswet, which is the Dutch National Old Age Pensions Act), mortgage interest deduction and allowances are adjusted every year with a view to the median purchasing power development. Apart from the fact that government forecasts on purchasing power development are always extremely unreliable, this also costs a lot of time and the treasury millions of euros.

Hier moeten we vanaf. De complexiteit zorgt tevens voor een ander nadelig effect: het gerommel en mismanagement bij de Belastingdienst zoals nu weer aan het licht is gekomen met de toeslagenaffaire.

We need to overhaul this outdated system. The complexity also has another negative effect: the fiddling and mismanagement at the Tax Administration Authority, as has now come to light again with the Dutch benefits scandal.

Reducing complexity

There are increasing voices, both domestically and internationally, for the creation of a universal basic income: an unconditional payment to every citizen of a country, an amount that is deposited monthly into everyone's account. That should be enough to live comfortably and would replace all allowances and other arrangements, such as the AOW.

With basic income, there is no means test to be eligible to receive it and no application forms to be completed. As a result, there is no need for the government to process or assess applications. This simplification would save a lot of bureaucracy.

Within the upcoming reorganization of our tax system, only one thing should be important: reducing complexity. It is very questionable whether having three instead of one tax administrator – each with its own director general, its own civil service and its own staff – will not actually increase complexity.

On the other hand, the introduction of a basic income is an ideal solution. A universal basic income is not only a safety net for future unemployment due to the ever-increasing automation and an instrument against high work pressure and long hours, but also the most logical answer to reduce complexity and the civil service.