1) It's the opposite of progressive taxation, since the tax deduction is higher the larger your mortgage is (and there's no deduction if you don't have a mortgage).
2) It artificially inflates housing prices.
Overall, it's a shifting of cash away from those that want to enter the housing market towards those that are in it, i.e. taking from the poor and giving to the rich. The policy seems like an obviously indefensible mistake, yet no political party dears to touch it because the majority of voters are beneficiaries of it, and the topic is slightly too complicated for there to be an informed public debate about it.
Disclaimer: I don't know much about this.
It doesn't have to be cancelled suddenly, it could be removed over a period of 25 years or even more. Similar to what happens with public pensions.
The argument behind this is that the current level of income/taxation can not support people on pension for more than ~12 years on average and as the life expectancy rises the retirement age must rise with it.
There is a fairly big debate happening on 'graduated pensions'. Should a bricklayer who has carried heavy loads all his life be forced to work to the same age as an academic who has spent a large amount of time behind a desk in an office?
The interest rate will go back up at some point and we would have a fairer house market without this tax deduction. It's basically a tax break for people with enough resources to buy their house. And it drives up the housing prices making it harder for first-time buyers.
This could be solved by just cancelling it. People taking advantage of this scheme:
a) had no reasonable expectation that it would be long-term, and,
b) had to be wealthy enough to initially access the scheme to benefit from it, and have since continued to benefit.
Handling any exceptional cases (which would be relatively very few) would be a lot more effective, in every sense, than continuing the scheme.
Besides, the Netherlands already has a Mortgage Guarantee Scheme which protects people with mortgages and changed circumstances.
I would certainly love to be rid of it sooner rather than later, but I do acknowledge that that's going to be disadvantageous to a lot of people, and will have to take them into account as well.
The mortgage guarantee scheme doesn't really apply here, I think: it raises the buying power of people with low incomes, but once you've bought a house, it only means that their bank gets paid if you're forced to sell it - but you'd still be forced to sell it.
I find this argument really strange.
Budgets can (and do) change and cancel categories of benefits for poor people overnight.
But benefits that accrue to wealthy people must not be changed overnight?
This is a function solely of power.
For example, whereas we need to raise the retirement age, we don't suddenly increase it with a couple of years. It is raised slowly in increments, and less for people who are closer to the retirement age and thus have had less time to plan for it.
This can be solved with a grandfather clause.
Another important difference compared to the US is that in Sweden you are more or less the bank’s serf. In many US states the home itself is the bank’s only collateral, and the homeowner can “walk away” if its value falls below the mortgage. In Sweden the bank can take everything you own, and even extract a share of your future earnings. Also there is no (quick) personal bankruptcy, only a slow process that takes years and where you have to show that you’ve payed as much as you possibly can. This lowers the bank’s risk and brings interest rates down. In Sweden you pay about 1-2% interest on a mortgage. In Denmark I think you can even get zero rate mortgages. This in turn of course incentives borrowing, since many people just look at the monthly cost of a home.
The biggest issue at the moment is the shortage of house in most parts of The Netherlands. So people max out what they can spend on a house, and certainly with low interest rate that amount to quite a lot.
As to fiscal reforms, at moment you get only a percentage of the interest you pay back, not the percentage of your highest income bracket. In addition, load need to be paid back in 30 years (linear or annuity) otherwise you don't get the tax credit.
[(edit) one addition, it is interesting that in The Netherlands, the more right wing, conservative parties want to keep this tax deduction the most, the left wing parties want to get rid of it]
Mortgage tax deduction without tax on imputed rent (as in Norway, Sweden and the US) is a subsidy to those who are rich enough to own their own homes. It is also a perverse incentive in that if you pay off your mortgage, you lose the tax benefit. So people take larger mortgages than makes sense, and invest their spare cash in risky assets rather than paying their mortgages down.
An imputed rent tax without a deduction for mortgage interest would be grossly unfair to borrowers, but does not exist anywhere as far as I know.
An imputed rent tax with a deduction lightly taxes mortgage borrowers against the benefits they receive from owning not renting. It has a bigger effect on owner occupiers without mortgages - they pay the full tax without any deduction. So it is progressive. It also levels the playing field between landlords and owner-occupiers - both are taxed on the rental value of their property and receive (roughly similar) deductions. So neither form of ownership has a built-in advantage.
(Probably the right wing parties want to remove the tax deduction because they also want to get rid of the tax on imputed rent?) As pointed out in the reply, this was a misunderstanding.
One thing they did introduce was that the imputed rent tax was limited to the interest tax deduction. To encourage people to pay off their mortgages, but that is now being rolled back.
One thing is that killing the tax deduction is likely to lower the value of houses because people cannot borrow as much without the tax deduction.
The elephant in the room in The Netherlands is not only the shortage of land to build new house but also what it costs to build a new house. You can lower prices by increasing availability, but only if the new objects are actually cheaper than what people pay now.
Building a house in The Netherlands is insanely expensive. Some of it for good reasons, a building code that has lots of requirements. A large part of The Netherlands is effectively a swamp, so foundations are also very expensive. However, contractors, etc. make quite a bit of money, but the worse part is that local governments try to make money of land. To finance the city, but also to have regular house subsidize social housing.
Nah. Two big reasons I can think of: people don't understand tax policy and wealthy people benefit (just less so in Blue states).
The first point is pretty straight forward. Lots of people talk about how things are "tax deductible" without even considering whether or not the deductions apply to them. Even if the IRS published that 85% (number made up) of people took the new standard deduction, thus used no deductions, you'd be hard-pressed to convince most people to get rid of the mortgage interest deduction. People in general (even smart ones) are just irrational when it comes to tax deductions.
Secondly, the mortgage interest deduction is still used by relatively wealthy people. A $600k mortgage generates >$16k in interest payments in the first year, even at the low rates we have today. That's easily enough to clear the standard deduction (for a single person). For married people, the hitting the SALT limit with that mortgage is enough to cross the threshold.
However it also reduces the incentive to reapay mortgage capital at all (is that bad?)
Currently if you have £500k in cash, you can either
1) Buy a house and pay no rent
2) Pay £1500 a month in rent
Why would you pay £1500 a month in rent (which at a marginal rate of 40% means having to earn £3,750 a month, or £45k a year, extra in income.
Effectively you get a 9% roi on that £500k by buying the house (ignoring house price inflation). Someone with £500k in cash and £50k a year is better off than someone with £0 in cash and £90k a year, despite the latter being nearly twice as valuable to the economy.
Now in a situation where £1500 a month is tax free, you'd have to earn £18k extra a year, and that roi on house ownership drops to 3.6%, and that's good. Housing should be somewhere to live, not an investment.
Of course on the flip side, the extra money available would likely push private rents and house prices up anyway. Perhaps the solution would be to ringfence the interest into some form of long term savings (either to use on buying a house, or to fund a pension).
The flip side might be true, but I think it's not as easy. I have a meeting now, so I can't go into detail (and not think about the details; ergo you might still be 100% right!). But if private buyers - those who would rent - can more easily compete with companies on buying, companies need to make renting more attractive. But maybe that effect is negligible.
I want to see this equalized - either allow humans to pay tax on profits only (i.e., they can deduct all expenses of their living), or tax a company's revenue like how a human is taxed.
60% of Australian landlords claimed a rental loss in FY17/18 and that's not an outlier. [0]
In jurisdictions where rental losses can be written off against ordinary income, landlords are happy to collect the tax benefit and just do the capital play.
[0] https://www.theguardian.com/business/grogonomics/2020/jul/21...
Although I don't know about Germany specifically, I suspect this is exactly the position you'd be in if you followed through with this plan - the company would have to pay tax on the rent. And you wouldn't be able to get around this by reducing the rent say to zero because it's a related party so the company would likely be taxed on an imputed market rent.
Now of course if the company pays e.g. 1000 Euro per month for the loan(s), it has to charge the tenants (=me & my SO) more than that plus taxes. The question is now if the effective tax rate can be pushed down to zero% by deducing the interest. As for the companies earnings, maybe that money could be "reinvested" into the house (better WiFi), so that MIGHT just be as good as putting some money aside. Or you actually buy another house for renting out. Obviously it's a good idea to talk about this to a tax advisor. For me this is only a Gedankenexperiment ;-)
If you buy another house to rent out that might prevent this. But the other thing as well is who benefits from the houses? Because now your friend will own the house you like and vice versa. You probably cannot put in any provisions to ensure your friend will at some point get ownership of his house.
That’s not how it works in Denmark. Here, interest deduction come in the form of increased personal allowance (ie. the annual income bracket below which you pay no taxes), which favor high and low income earners equally. I’m surprised that isn’t also the case in The Netherlands. Are you sure it’s not?
We are pretty sure it is not, that is, the more you earn, the more you can deduct, starting with the highest brackets.
You know banks are not in your side, with a unfixed rate that is just stupid to assume that in 30 years rates will always be low. That is why I payed 40 % of my house upfront, got a low 25 year debt with fix rate (it wasn't easy to find) negotiated now. I'm set for life, I'm paying 400 euros to the bank every month and I sleep well every night.
While in theory if rates go up you could find the bond for your house and buy it at a greatly reduced rate, thus paying much less for your house. In practice there is no individual bond for your house so you can't do this.
The main drivers are probably the tax policy: mortgage interest payments were fully deductible (untill the very slow phasing out reforms after the 2008 financial crisis). This sounds similar as in the US, but in the Netherlands/Europe the effect is stronger because marginal tax rates are high (>50%) and the top income tax bracket kicks in much earlier than in the US. It starts around 60k in the Netherlands, so beyond 60k more than half of every extra earned Euro goes to the state. Due to the full deductibility, the common narrative became: if you're in the top tax bracket, the state pays more than half your mortgate interest. For most working households, pensions and mortgages are the only substantial tax relieves, which predictably lead to households maxing out their pensions and mortgages.
In the Netherlands, zero-downpayment (or even negative-downpayment), interest-only mortgages are/were the norm. Before the 2008 crisis, it was very common for respectable financial advisors and banks in the Netherlands to advise households to borrow as much as they can on a 30 year mortgage, never pay down the debt and put everything in the stock market.
(Incidentally, my distaste for the bad incentives that come with the tax gimics in high public-spending regimes is one of the reasons than I, a European welfare state citizen, am probably more right leaning, cold-hearted fiscal conservative than the median young progressive American tech-forum dweller.)