Budgettary Deficit: What to do?

Financial need

The government is facing financial issues. Somewhere soon, they must gather an additional 10 billion euros. The pressure is on since they must hand in the Spring memo on the first of May. The financial issues arose due to the compensation scheme for the loss in purchasing power, the annulment of the capital gains tax by the High Court, and the expensive wishes of the Lower and Higher House.

Capital gains tax

The Professor reasons that, indeed, a big part of the deficit is attributable to the annulment of the capital gains tax. The ‘old’ capital gains tax system was based on fictional returns. The High Court reasoned, that it is disproportionate to tax savers the same as investors even though the latter usually make much more return on their capital than savers.

Compensation

The Secretary of State has proposed three methods to compensate individuals who were taxed according to the ‘old’ capital gains tax system in the past four years. Kavelaars argues that one of those three methods is the most realistic. This method centers around assessing the gains on capital per kind of asset for each taxpayer, and compensating the taxpayer for the taxes they paid according to the ‘old’ method minus the taxes they should have paid according to this method.

Speed

Kavelaars stresses that the government should make haste with the implementation of a new capital gains tax system, because currently no tax is levied on capital gains. The economically most efficient solution would be to tax real capital gains instead of fictional capital gains. However, this may take longer than we think due to capacity issues at the Tax Authority.

A new system based on taxing capital instead of taxing capital gains is not a good idea according to Kavelaars. He stresses that this will de facto lead to economic double taxation. Although this is easy to enforce, it is very unfair, unconsumed income of individuals is essentially taxed again in this system