A different approach to austerity

In 2014 the government wants to cut spending by between 6 to 8 billion Euro’s. The government wants to realize these cuts by raising taxes and cutting services to the populace. B of Joy (BOJ) is of the opinion that the burden of the austerity measures should be placed on the parties that caused the crisis and not with the ‘average’ citizen. This can be achieved by getting rid of the tax deduction on mortgage interest payments and compensating mortgage owners by substituting current, far too expensive mortgages by much cheaper ones.

In the Netherlands, banks charge an average of over 2,5% per year as their margin. In contrast, in Denmark banks by law are only allowed to charge 0.5% per year as their margin. For a long period of time this has in practice proven feasible. The difference of 2% per year is equal to the total tax deduction under current mortgage arrangements. This costs the Dutch government 12 billion Euro’s per year. Lowering the mortgage interest rate by 2% per year means that the profits for the banks will be 12 billion Euro less per year. As a result of this the revenues for the tax on corporations will decrease by 3 billion Euro. Net result will be 9 billion Euro savings for the state.

Tax and job plan ‘A two way street’

Due to the financial crisis over 300.000 people in the Netherlands have lost their jobs. In total this amounted to 675.000 people unemployed on July 18th 2013. There is an urgent need for a means to stimulate the Dutch economy, without burdening the state budget. This is achievable through our tax- and job plan. This plan consists of 4 points:

1. Health insurance premiums, now paid by employers, will be paid for by the state.
2. The costs of sheltered employment, re-integration subsidies and all benefit payments to people below the pensionable age, will be paid for by employers.
3. For unemployment and disability insurance premiums, and the aforementioned costs, there will be one overarching premium.
4. Give employers the opportunity to exchange the overarching premiums for extra jobs.

Through the above mentioned points it becomes possible for employers to have an additional employee ‘for free’ to every four they hire. The motto will be: ‘pay for four, get five’. The fifth employee is currently also being paid for, by society, the difference being that this employee is now sitting idly at home.

According to the Central Planning Bureau’s calculation model ‘Sapphire’, this plan can generate around 250.000 jobs. On top of this, this plan generates additional tax revenues, so the state has to cut less in its spending in order to balance the budget. This plan is relatively simple and can be realized within a year, given the proper political will.

An alternative for ‘Casino-style' pension funds

In 2013 the government decided that the pension system will be adjusted in 2015. The planned adjustment means that many people will be obliged to participate in over priced and irresponsible Casino style pension arrangements. BOJ is of the opinion that the pension savings of participants can safely be used for, for example:

1. Cheap financing of mortgages.
2. Loans to housing associations, for the renting out of houses.
3. Financing the national debt (up to 60% of the gross domestic product).

These alternatives are safe when compared to the stock exchange based high risk investments, etc. In the perspective of BOJ, the revenues given on pension savings should be linked to the average yearly raise in wages. Which means in practice that when collectively bargained wages increase with 2% or 4%, the revenues on pension savings increase by the same amount. The interest that must be paid on mortgages, loans from housing corporations and the national debt equals the interest payable to pension savers. On top of that there will be an additional 0.5% to cover the costs made by pension funds and banks who give out these loans.

Through this approach many billions of Euro’s can be saved on superfluous costs made in the financial sector. From the perspective of adding real value to society, many people now working in the financial sector have irrelevant jobs. Through this new approach these people can start performing useful work that serves society.

Solving the financial crisis

Cause

During the last 20 years regulations for the financial sector have been relaxed. As a consequence the use of money and the size of the financial sector has increased significantly. Currently the size of the financial sector is much larger than required for facilitating the real economy. On top of that, our society has become subservient to the financial sector, rather than the other way around.

Current policies

Since 2008 governments and central banks in Europe and America have pumped significant amounts of money into the financial system in order to keep the current (financial) system going. The bill for this is presented to the citizens of the country in various ways. One of the options is a significant increase in the national debt. Increased taxes. Decreasing or even abolishing public services. An easing of the labor market (aka reducing rights of employees). But also an increase in inflation, which reveals itself in significant price increases in oil, raw materials and therefore products. All of this is apparently not enough. Governments and financial institutions are preparing to implement a ‘bail in’ program, probably as soon as 2016. Under the guise of ‘saving’ the banks, citizens’ savings will be seized.

Solution

BOJ is of the opinion that the financial sector should be made subservient to society. And that the bill for solving the current financial crisis should be presented to the parties that caused it and have profited because of it for years on end. This can be achieved (in line with the advice given in the report ‘The Financial obesity of the Netherlands’, by reducing the size of the financial sector by at least 50%. This liberates sufficient reserves so we can book off as losses that part of the national debt above 60% of the national income, and problematic debts in the private sector. This enables us to sanitize the financial sector and stabilize the size of the financial sector in proportion to the needs of the real economy. For this solution we don’t have to disturb the citizens of the country.

Alternative

BOJ expects the government to continue current policies, as long as the wider public doesn’t demand that its government implements significantly different policies. BOJ offers an attractive alternative, which can be explored on this website. Do you want to join us? Help us and yourself to realize this alternative.