Water Pricing in the Netherlands

Abstract

In the Netherlands, about 75 % of monitored groundwater extractions are used for the production of tap water. Water extraction for tap water production is the main consumer. The tap water rate of the various drinking water companies largely depends on the share of groundwater used, which requires lower treatment costs than surface water. In 2014, the tap water rate varied between 1.11 and 2.21 euro/m3. There are various taxes in place on groundwater use, as well as on tap water use. Such taxes can aim to recover costs, trigger water-saving technologies, or reduce water demand for environmental purposes. In 1995, the national groundwater tax was implemented—a so-called “win–win, green” tax that aimed to reduce the income tax burden and to have an environmental impact in terms of reduced groundwater extraction. From 2012 onward, the Dutch government, however, revoked it, as it was fiscally inefficient and environmentally ineffective. It increased distortions by taxing only a narrow base and by interfering with groundwater management programs funded by an existing provincial groundwater fee. In 2014, the national tap water tax was increased. But given the fact that only 0.6 % of a household’s budget on average is dedicated to tap water, it is not likely that it will substantially reduce water demand. This increase in the tap water tax contradicts the low rate of the value-added tax (VAT) on tap water.