The tax on savings should be reduced and the number of income tax bands cut back from four to two, according to a government commission.

The recommendations, presented to junior finance minister Frans Weekers on Monday evening, were made by a special working party set up to look at ways to simplify the Dutch personal tax system.

At the moment, assets are taxed at 30% if they have booked a return of 4%, but in practice this is much lower. The commission estimates the average return over the past five years to be 2.4%.

Instead, the fictious return should be reduced to 3% and then 2.4%, the commission says.

Tax bands

The commission also suggests taxing all income under €62,500 at a rate of 37%, with a 49% tax on higher earnings. At the moment the Netherlands has four income tax bands. Earnings under €19,645 are taxed at 37%, while the current top band of 52% starts at €55,991.

The change would mean some 12 million people would pay no more than 37% tax, the commission estimates.

The commission also proposes combining housing, health and child benefits so ‘people can see what they will have left if they start work’, the commission said.

Balance

If all the measures are implemented the effect on the government and individual finances will be limited, the commission says.

Commission chairman Kees van Dijkhuizen said the recommendations will lead to a ‘simpler and improved tax and benefit system’. ‘Most people are prepared to pay tax if this is done fairly,’ he said.

According to the macro-economic think-tank CPB, the changes would generate 140,000 jobs because they would stimulate more people to take up work.