The Netherlands’ incoming coalition government—comprising liberal D66, center-right CDA, and market-friendly VVD—is grappling with a political storm over whether to preserve the country’s controversial mortgage interest deduction, a policy that has long fueled homeownership but also distorted housing markets. While the coalition has agreed to raise healthcare deductibles to offset budget pressures, internal divisions over the mortgage deduction threaten to derail fiscal plans just as the government takes office.

The mortgage interest deduction—a tax break allowing homeowners to deduct up to 43% of mortgage interest payments—has been a political flashpoint for years. The OECD and Dutch economists have repeatedly called for its gradual reduction, arguing it inflates housing prices and reduces supply. Yet the new coalition has confirmed plans to maintain the deduction, a decision that could deepen tensions with fiscal hawks and housing reform advocates.

The coalition’s healthcare reforms—including a €75 increase in the annual deductible, from €385 to €460 in 2027—are designed to save billions while shielding the mortgage deduction. But critics warn the move could disproportionately burden lower-income households, who already face rising costs for both housing and healthcare.

Internal Divisions Over Mortgage Deduction Threaten Fiscal Stability

The mortgage interest deduction remains the most contentious issue within the coalition. While D66 and CDA have signaled openness to phasing out the deduction over time, the VVD has blocked any immediate reforms, citing electoral risks. The party’s stance has forced the coalition to walk a tightrope: balancing fiscal responsibility with political pragmatism.

Economists argue that the deduction—one of the most generous in Europe—has distorted the housing market, making it harder for first-time buyers to enter the market while inflating prices for existing homeowners. The OECD has previously recommended shifting subsidies toward rental housing to improve affordability, but the Dutch government has resisted such changes.

The coalition’s healthcare reforms, meanwhile, aim to reduce premiums by €199 annually—a figure cited by insiders familiar with the agreement—by increasing the deductible. However, the move has sparked backlash from patient advocacy groups, who warn that higher out-of-pocket costs could deter people from seeking necessary medical care.

Who Stands to Gain—or Lose—From These Reforms?

Homeowners will likely see little change in the short term, as the mortgage deduction remains intact. However, those who rely on the deduction to offset high mortgage costs may face long-term uncertainty if reforms are introduced later in the coalition’s term.

Renters could benefit indirectly if the government follows through on plans to increase housing supply by reducing demand-side distortions. Yet with rental prices already at record highs in cities like Amsterdam and Rotterdam, relief may not come quickly.

Lower-income households face the greatest risk, as higher healthcare deductibles could push medical costs beyond their means. The coalition has pledged to cap annual deductible payments at €150 per treatment starting in 2028, but the initial €75 increase in 2027 may still create financial strain.

Insurance companies stand to gain from the healthcare deductible hike, as lower premiums could improve affordability for policyholders. However, the industry has warned that further increases may be needed if the government does not address rising healthcare costs.

The Road Ahead: Key Deadlines and Political Battles

The coalition must finalize its budget plans before the end of 2026, with key votes expected in the Dutch Parliament by December 1, 2026. The mortgage deduction debate is likely to dominate negotiations, particularly if the VVD faces pressure from fiscal conservatives to align with EU-wide housing affordability goals.

Meanwhile, the healthcare deductible increase will take effect in January 2027, giving insurers and providers time to adjust. The government has also committed to reviewing the policy’s impact by mid-2028, which could lead to further reforms if public opposition grows.

For now, the coalition appears determined to avoid a repeat of the 2025 political crisis, when the collapse of the previous government over mortgage deduction reforms triggered a snap election. Yet with public opinion divided, the government’s ability to deliver on its fiscal promises remains uncertain.