Last week the Dutch government published an idea to overhaul the Dutch wealth tax system. Currently, the system assumes a return on any wealth above 30.846 euros which is then taxed at 30%. This results in approximately 1.2% tax (see details below copied from the press release) at 4.2% which is the rate assumed on savings between 73k-1m. Note the system changed relatively recently, it used to assume 4% return above 30k savings without any tiering.
The new system will take into account the allocation of the wealth into savings and investments. Details on this are still a bit unclear but let’s stick to the example above. The assumed return on cash savings will drop to 0.09%. This results in a headline catching statement: 1.35m people won’t pay wealth tax anymore. This makes sense given that the 10Y Dutch government bond now yields negative 0.5%.
The less positive (for some) is the fact this measure is designed to be budget neutral. This means that investments (i.e. any non savings wealth – with some exceptions?) will have to make up for the 4.5bn (as per fd article) of lost income. Based on the scheme above, it seems like the tax would then be about 1.75% on any investments above the cutoff.
Many details are still quite unclear, e.g. rules on second homes, mortgage/debt deduction, exact rates, exact calculation (e.g. as of when is the asset split evaluated). Nevertheless, this is a major overhaul and I believe the fact that 1.75% would be shaved off the risk premium on risky investments relative to savings accounts might have some major implications on both individuals and major institutions which I will discuss in another post.