Cabinet parties divided over mortgage interest tax relief plans

A report on the cabinet’s plans to reform the mortgage interest tax relief system has reopened the divisions between the coalition parties on the issue.

Finance ministry officials set out seven different options to fix a longstanding problem in the system on Wednesday, while stressing that abolition was the best option.

The right-wing liberal VVD, which is a strong supporter of mortgage tax relief, successfully argued during the coalition formation that it should be retained and had it written into the agreement that was finalised in January.

The VVD made the deduction a red-line issue during the autumn election campaign; D66 and CDA conceded the point after pressing initially for a phase-out.

Officials were asked to come up with solutions to the looming deadline that was set when the tax relief mechanism was capped at 30 years in 2001.

The tax office cannot enforce the cut-off and no central records have been kept of what people have claimed. The ministry says homeowners could extend the deadline as late as 2043 with no way of knowing if they are entitled to the extra payouts.

The officials said the best option financially is to cut off all mortgages taken out before 2013 in 2031, which would save the Treasury an average of €1.4 billion a year between 2031 and 2043. Doing nothing would cost more than €100 million a year as people unknowingly or deliberately keep claiming.

“Technical problem”

Junior tax minister Eelco Eerenberg of D66 said on Wednesday that the cabinet would come up with a solution this parliamentary term, only for deputy prime minister and VVD party leader Dilan Yesilgöz to publicly contradicted him within hours.

“This is a technical problem. The next cabinet should deal with it,” she said. The next general election is due to take place in the spring of 2030, less than a year before the deadline expires.

Mortgage holders receive money back each month via their income tax return on the amount of their outstanding mortgage, in what the VVD sees as an incentive for home ownership but opposition parties call a tax break for property owners that drives up prices.

On Tuesday, D66 and CDA voted with opposition parties for a motion to reverse a €281 million increase in the deduction that came automatically through the cabinet’s spring budget, while the VVD voted against.

The same day, finance minister Eelco Heinen, of the VVD, told RTL Z the cabinet would not change the deduction even with the ministry’s report on the way. “We’re keeping it just as it is,” he said.

“Head-in-the-sand strategy”

ChristenUnie MP Pieter Grinwis called the VVD’s position a “head-in-the-sand strategy” on BNR Nieuwsradio. The International Monetary Fund, which separately renewed its call for a gradual phase-out in its annual Dutch assessment on Wednesday, has long argued the deduction inflates house prices and disadvantages renters.

ABN Amro analysis published last October found most homeowners do not depend on the monthly tax saving, undercutting the VVD’s argument that ending the deduction would hit ordinary working families.