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On behalf of the Ministry of Finance, Dialogic Innovation & Interaction and Significant APE have conducted an in-depth study on the effectiveness of the reduced VAT rate on insulation work, building on the previous general evaluation of the reduced VAT rate. The aim was to determine the extent to which this reduced rate was effective in stimulating energy savings and the construction sector, and to examine its relationship with other subsidy programmes such as the ISDE. This involved desk studies, interviews and quantitative analyses.
Objective and impact
The reduced VAT rate on insulation work, in effect since 2009, was introduced to stimulate energy savings, the construction sector, and broader economic incentives. We assess the effectiveness of the reduced rate as low. Initially, the reduced rate provided a direct price incentive for insulation work, but this effectiveness has significantly decreased due to external factors such as the energy crisis. Additionally, the reduced VAT no longer contributes to stimulating the construction sector due to current labour shortages in this sector.
Efficiency assessment
The efficiency of the reduced VAT rate as a tool for energy savings is considered limited. The costs per unit of energy saving are comparable to other schemes focused on the built environment, but less effective than business-oriented programmes. For the construction sector, the scheme has low efficiency, with costs per job generated higher than salary costs.
Alternative policy options
This study identifies three alternative policy possibilities.
1) Simplification of the tax system - by shifting the budgetary significance of the reduced rate to targeted subsidies such as the ISDE, SVVE and SVOH, the tax system in the Netherlands can be simplified.
2) Alternative policy for the construction sector - if stimulating the construction sector remains a priority, policy should focus on reducing labour shortages to generate more impact.
3) Innovation in construction - concentrate efforts on technological innovation within the construction sector. This provides a more sustainable way to achieve the intended policy goals of energy savings and sector stimulation.
