December 17, 2012
In recent years there was a large deterioration of Dutch public finance. As for previous years, for 2009 a balanced budget was foreseen in the budget plan that was presented just before Lehman Brothers fell. The 2009-budget also foresaw a reduction of the public debt/GDP ratio to 38 percent, the lowest level in 35 years. However, the economic and financial situation developed in a way that was very different than originally foreseen. In 2009, the deficit/GDP ratio reached a peak of 5.6 percent and fell only slightly to 5.1 percent in 2010. Moreover, mainly due to interventions to save the large Dutch financial sector the debt/GDP ratio increased by almost 15 percentage points from 45 percent GDP in 2007 to almost 60 percent GDP in 2008.
Following the June 2010 elections a government between Christian democrats and liberals supported by the populist PVV took office towards the end of 2010. It agreed on an austerity and reform package of 18 billion euro’s (3 percent GDP) over the period 2011-2015. Based on the coalition agreement in 2010, the deficit/GDP ratio for 2013 was forecasted to fall to roughly 2 percent. The European debt crisis has severe effects on the Dutch economy, which is hit harder than other, financially healthier countries like Germany and Finland. However, the Netherlands Bureau of Policy Analysis (CPB) in March 2012 predicted a 2013 deficit/GDP ratio of 4.6 percent, implying additional austerity measures of 2½ percent GDP in order to meet the 3 percent target of the Maastricht treaty. This figure takes into account second round effects. Therefore, the negotiations between the government and the PVV on additional measures for the remainder of the coalition period broke down in April 2012 and new elections were scheduled to take place in September 2012. Fortunately, on April 26th, only a few days before the deadline for the Stability Program, the caretaker government managed to agree on a 12 billion austerity package for 2013 after winning the backing of three left-leaning opposition parties. It was estimated that in 2013 the deficit/GDP will be 2.7%.
Following the September 2012 elections a government between liberals and Social Democrats took office already in October. It agreed on an additional austerity package of 16 billion euro’s (2½ percent GDP) over the period 2014-2017. The line of the new Rutte-II government is that additional cuts or tax increase are needed for sustainable public finance. There is a large consensus in the Netherlands that a structural balanced budget should be achieved in 2017 as also opposition parties such as Christian democrats and left wing liberals (i.e. D66) has such plans in their election-program.
Despite these austerity plans of summing up 46 billion euro (7½% GDP) the Dutch central bank is less optimistic, that Dutch public finance will improve significantly in due course. On Monday 10 December, they published disappointing growth figures. They estimated that there will be a negative growth in 2013 of -0.6% after a modest growth in 2011 and larger shrink in 2012. For 2014 a small recovery to 1% is estimated now. As a consequence, the deficit/GDP growth will be -3.5% in 2013 and 2014 and therefore not meeting the deficit target of the Maastricht Treaty. Politicians are waiting for official estimation by the CPB in March. However, extra austerity measures seems inevitable if the Dutch government want to meet the Maastricht target. Moreover, an agenda to improve growth and restrain trusts especially in Dutch financial and housing markets seems important as well.Author : Raymond Gradus