Current issues related to economy, (responsible) investment, pension and income: every week, an APG expert gives a clear answer to the question of the week. This time: Charles Kalshoven, macroeconomist and expert strategist at APG, on CNV’s call to stop taxing employee shares. Does this really represent the egg of Columbus with which to combat inequality?
Unlike in the countries surrounding us, the Netherlands has no tradition of allowing employees to share in company profits through shares. According to CNV, this applies to less than 10 percent of companies. They give shares to their employees, which is still seen as wages on which taxes must be paid. The union now wants a company to be able to gift up to 2,000 euros worth of shares to employees tax-free. That would help combat rising inequality.
The CNV's plan comes at a time when big companies are being accused of “greedflation”, using inflation to raise prices more than necessary. “I don’t think you should see it as the solution to greedflation,” Kalshoven said. “First of all, you shouldn’t be obsessed by the profit margins of the moment. Those can also drop again, for example because of sharply rising wages. For instance, collective bargaining wages agreed on in May went up by 8.2 percent. And to the extent that there are structurally abnormally high profits, this indicates a market failure. Then address that malpractice at its source by promoting competition. Allowing employees to share in monopoly profits is not a real solution. Consumers - employees of other companies - will then still pay too much for their stuff.”
Still, according to the economist, there is a positive side to the idea. “The added value of a company is shared between the capital providers (shareholders) and the employees. If wages lag and profits rise, employees can still benefit through their shares.”
Another advantage is that as an employer you can then be more flexible in your wage policy. “If your company is doing a little less well, distributing shares to employees results in lower (wage) costs. At least if you have agreed not on an amount but on a certain number of shares.” But again, every advantage has its disadvantage, in this case for the employee. “An investor will prefer to spread his risk as much as possible. But if an employer is not doing well, an employee with shares from his employer runs a double risk. His job is at risk and his shares drop in value.”
It can also come at the expense of the union’s bargaining power. “The latter wants the shares to be on top of regular pay. But the cost of the shares gifted to the employees will still come in part from the existing wage bill. Employers are then more likely to refuse a higher wage demand and point out that the employees have already received shares.”