Dutch horticultural sector expects major setback with higher VAT rate
The potential yield for the government set against the enormous damage that would be caused to the sector and loss of jobs forms a very uneven balance. FloraHolland and the VBN call on the Dutch government not to consider raising the VAT rate.
Lucas Vos, CEO of FloraHolland
If the government does decide to increase the current low VAT rate of 6% for flowers and plants to the high 21% VAT rate, the export position of the Dutch horticultural sector would suffer a major setback, and lower income groups would no longer be able to afford these products.
Horticultural products respond very flexibly to prices: the higher the price, the greater the drop in demand, according to research conducted by the Agricultural Economics Institute (LEI) 1. An increase in the VAT rate would be transferred in its entirety to the consumer. The sector's turnover would decrease by at least €240 million according to the VBN's estimate, resulting in a loss of 5,220 directly linked jobs 2.
In addition, given that the Netherlands is a European and global market leader in the horticultural industry, an increase in the VAT rate would send a wrong signal to other EU member states. Exports would also be affected, resulting in an even more disastrous scenario: at least €450 million lost turnover, and 9,100 jobs would disappear 3. The total negative effect will be even greater as it would include the consequences for indirectly linked jobs and turnover, such as the suppliers.
In Vos's opinion the Netherlands must not make the same mistake as France did in 1991 and Spain in 2012. Spain raised the VAT rate in 2012 from 8% to 21%. The rate was quickly reduced again in 2015 for horticultural products after the sector experienced a 27% drop in demand. The resulting damage was enormous: 30% of the florists went out of business. Spanish research revealed that consumers spend a fixed amount on flowers and plants. The expectation that consumers would continue to buy products that had become more expensive after a reduction in their income tax proved to be incorrect.
In 1991 France raised the horticultural VAT rate from 5.5% to the general VAT rate of 18.6%. This was also reversed just two years later. The net turnover had dropped so drastically in those two years that it led to a job loss of 11,000 places from the total of 158,000. The government did generate higher VAT revenues, but this was outweighed by the downward pressure on the revenues from the income tax. The latter was caused by the loss of jobs, reduction of the net turnover in the retail trade, and the more expensive purchases of plant products by government departments.
Such a move would also undermine the position of the Dutch horticultural sector as a global model. There is a very real concern that sustainability goals will not be achieved if the margins are subject to even more pressure.