The Council of State is extremely critical of the Bill of Job-related Investment Discount.
The 4 billion euros in tax deductions with which the cabinet wants to boost business investment in 2021 and 2022 will not lead to additional investments, but only to a shift in investments over time. The cabinet itself admits this in the cost calculation of the measure, confirms the Central Planning Bureau (CPB) when asked. The Council of State covers the bill with critical comment, but the cabinet is ignoring this.
On Monday, State Secretary Vijlbrief (Tax Affairs) sent the bill of the Job-related Investment Discount (BIK) to the Lower House, together with the advice of the Council of State and an explanation. Dutch companies that make investments of (added) at least 20 thousand euros in the next two years, may deduct 2.4 to 3 percent of the investment amount from their wage tax. Even before the details were known, the opposition referred to the BIK as “a present for the business community”: ordinary tax cuts disguised as a crisis measure.
The finer points of the arrangement are unlikely to satisfy the opposition. The coalition is trying to sell the BIK to the enemy camp in the Lower House with the bait “job-related”. This term suggests that the scheme will create or preserve jobs that would otherwise disappear. But the government does not substantiate this employment effect anywhere. Vijlbrief only refers to “studies” that show that business investments are generally good for employment. He does not provide a specific calculation of the BIK by the CPB: it is now made at the request of the opposition.
No “B” in “BIK”
According to the Council of State, the qualification “job-related” is therefore not fulfilled by the cabinet. The government’s advisory body finds the term “confusing” and advises the cabinet to drop BIK’s “B”. The cabinet does not do that. Vijlbrief’s defense is that the scheme may be called that, because companies deduct the investment costs from the wage tax. However, there is no direct link with job creation. On the contrary: the purchase of a new production line in Poland, resulting in job losses in the Netherlands, is also eligible.
Moreover, the BIK does not encourage companies to make additional investments. The tax collector is too small for that, according to the cost accounting that Vijlbriefs officials have submitted to the CPB. Because the benefit of up to 3.0 percent is of limited size relative to the investment cost, it is assumed that the remittance reduction will not lead to a substantial increase in investment in 2021 and 2022, apart from shifts in investment that would otherwise be in 2020 or 2023. take place.’
Timely and temporary
Economist Bas ter Weel, director of SEO Economic Research, like the Council of State, doubts whether the BIK is an efficient use of public money. The Council of State fears that the BIK funds will mainly benefit companies that do not need the tax subsidy and would invest anyway. In that sense, the measure is not targeted enough, according to the Council of State. Ter Weel agrees. “For such a crisis measure to be effective, it must be timely, temporary and targeted. At first sight, the BIK does not seem like any of the three. “According to him, it is not temporary, because even after 2022 the cabinet is already reserving 2 billion euros per year for” lowering employer costs “. “The design as BIK may be temporary, but the burden reduction is apparently structural.”
The measure is also not “timely”, in the sense that it is effective at the bottom of the crisis. According to the CPB, investments will “bounce” back by 7 percent next year, even without the BIK. Companies may register investments from after October 1, 2020, but the application window will not open until September 2021. After that, it can take another three months before the government makes a decision. Only companies that want to invest in any case will already enter into financial obligations, while they will only hear whether they will receive a tax discount in more than a year.