EUROPE – The Netherlands could slash its current national debt by taxing future pension benefits, according to a local consultancy.

Hilversum-based Yellowtail said the government could use the revenue from the tax to tackle much-needed reforms if pensioners were paid net benefits.

The consultancy said a 10% tax on the roughly €1trn in assets in the second and third pillars – combined with the abolition of tax relief for interest on mortgages and worker disability insurance – could make a big dent in the Netherlands' national debt.

Yellowtail also claimed that reducing the national debt would put the government on much better footing to overhaul the tax system.

Rudolph Vermeer, a partner at the consultancy, said: "It would stop the circulation of money by the government and create transparency and simplification.

"An additional positive effect is that the government would pay less for tax relief, and the EU couldn't lay claims on our pension funds any longer.

"This way, the Dutch pensions system can recover in real terms and be made sustainable."

Vermeer said abolishing tax relief and levy discounts would also create the opportunity for a flat tax rate.

He said a flat tax would improve competition and market transparency, with the cost of financial products falling as a consequence, as providers would take actual costs into account rather than prices that already include tax relief.

While economist Lans Bovenberg said Yellowtail's suggestion was "probably feasible", he also described it as an "optical" solution.

"It would lead to a decrease in future tax revenues," he said. "With an improved financial position, the government might be tempted increase spending, which could create deeper financial problems later."

The Tilburg University professor also argued that a flat tax would be "almost unachievable" politically at the moment.

Without the flat tax, the consultancy's plan might be achieved through the combination of a 10% decrease of pension assets, a tax reduction of 10% on benefits and a reduced tax relief on pension contributions by 10%, he said.