NETHERLANDS – The Dutch government has scrapped tax breaks for early retirement and pre-pension schemes in a bid to encourage workers to remain in the labour market for longer.

The Dutch finance ministry said in its 2004 budget presented today that “tax breaks for early retirement and pre-pension schemes will be abolished”. The decision had been widely expected.

The proposals centre on raising the taxation of the widely used VUT early-retirement system. Dutch union confederation the FNV has already said the plan is "idiotic" and that it would challenge it in court.

Demographics were at the heart of the government’s budget planning. “In setting the budgetary objectives, the government has taken account not only of the European rules but also of demographic trends,” the ministry of finance said.

It said that without new measures, higher state pension payments and increased healthcare spending would “cause the public finances to spiral out of control”.

It would tackle this with a three-pronged attack. It would raise labour market participation and adapt state benefit schemes to reduce the impact of ageing on public spending. It would pursue a “sustainable budgetary policy aimed at paying off the public debt” which would cut interest payments and enable the higher ageing costs can be absorbed.

“Older people must continue to work as long as possible,” said Queen Beatrix, 65, presenting the government’s agenda for 2004 in her annual speech to the upper and lower houses of parliament.

Dutch bank ABN Amro said it was not convinced by the government’s policy. “The arguments to substantiate the expected effects of this policy are weak,” it said. “In addition, the economic assumptions are not sufficiently cautious. This means that bringing down government debt could take longer than the government expects.”

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