'Millionaire tax' dispute leaves Dutch government on brink of collapse

The Dutch government is in crisis after a proposed "millionaires’ tax" exposed such deep divisions that the three-party coalition is at risk of crumbling after less than nine months.

Parties bickered over a deal with the left-wing opposition to support a 2027 tax plan in exchange for ⁠an increase of wealth taxes. The lower house of the Dutch parliament narrowly passed the left-leaning bill – which would shift the country’s tax burden from income to wealth-related measures – late on Thursday, after Prime Minister Rob Jetten’s centre-left D66 party and the Christian Democrats teamed up with left-wing opposition groups.

The conservative People’s Party (VVD), the third group in the governing coalition, threatened to quit if the measure passed.

Mr Jetten, who in February became the youngest prime minister in Dutch history at age 38, will try ⁠to save his minority government in a ​meeting with coalition partners on Friday.

Following the vote, the party’s politicians said they needed more time to decide the next steps regarding the legislation, which still needs to pass the upper house before it becomes law.

VVD leader Ruben Brekelmans said the result of the vote was "disillusioning" and would force his party to seriously reconsider its position. “I’m going to consult thoroughly with my party and my caucus first,” he told Dutch broadcaster NOS. “I’m not going to jump to any conclusions.”

The controversial element of the legislation has been called the "millionaires’ tax". It proposes taxing returns on assets above €60,000 ($66,555) a year at 38.5 per cent, among the highest rates in the euro region. The rate below the threshold would drop to 35.5 per cent. That rate is 36 per cent currently, regardless of the amount.

The bill would also crack down on efforts to avoid inheritance taxes through so-called paper gifts, when money is legally given but not transferred.

Show caption: Dutch Party for Freedom leader Geert Wilders speaks during a…

According to projections from the parties supporting the amendment, the budgetary impact of the proposal would shift about €1 billion of tax burden from income to wealth.

The Dutch government had already dropped plans to impose a capital gains levy from 2028. It scrapped plans to tax any increase in the value of shares, bonds or cryptocurrency – even if they were not sold – after warnings that the move could lead to a mass departure of investors. The Netherlands' plan had been described as “insane” by former Wall Street executive Andrew Lokenauth, while Elon Musk liked a social media post that criticised the scheme.

Some condemned the government crisis, downplaying the size of the changes proposed.

“Declaring a cabinet crisis or derailing a tax plan because a millionaires’ tax goes too far, is unexplainable to the Netherlands and voters on the right, centre and left,” said Jesse Klaver, leader of the progressive PRO party, during a debate on the tax plan in the House of Representatives on Thursday. “If you pass an amendment like this now that drives away even more investors, it will be very bad for the economy."

The PRO is the biggest opposition party in both houses of parliament and was one of the left-wing opposition groups that struck a deal on the tax amendment.

“Looking at the order of magnitude of the content, you would say it’s not worth breaking up a government over this,” said Marieke Blom, chief economist and global head of research at ING Group. “It’s symbolic, not essential from an economic perspective. The risk of another period of stagnation and/or regulatory uncertainty is more relevant at this time.”

The disagreement reflects the power wielded by several political parties in the fragmented Dutch parliament, where bartering over a wide range of issues for each vote has led to deadlock. Mr Jetten’s government does not have a majority in either house and as a result has to rely on support from left and right-wing parties to pass legislation.

The government crisis could lead to new elections, which would be the fourth in the Netherlands in the past five years, after two previous ​governments were also short-lived.

A new vote would not be a ‌given, however, because parties could try to ⁠form a new government based on the ​current seats in the lower house of parliament. But the options would be limited ​as that ‌would probably yield another minority government, an option immediately ruled out by the left-wing, opposition-leading Pro party ⁠on Thursday.

Mr Jetten's centrist D66 party was the surprise winner of the last election a year ⁠ago, after a polished and optimistic campaign that promised a break from the divisive previous government dominated by nationalist Geert Wilders.

But Mr Jetten's optimism was put to the test from the start, because his coalition lacks a majority in both houses of parliament and needs ​opposition support for all its proposals.

The Netherlands is traditionally led by government coalitions with a majority in parliament. But securing a majority has become increasingly difficult in a fractured political landscape, as voter preferences change in every cycle and centrist parties have steadily lost support.

Agencies contributed to this report