The government can still breathe a sigh of relief

Next year will not be the most difficult budget year for Finance Minister Eelco Heinen (VVD). After a year and a half of sluggishness, the economy is doing well again. Thanks to the policies of the Rutte IV cabinet, fewer people are living in poverty. Wages in the Netherlands are rising faster than prices. Therefore, all Dutch people can expect to have more spending in the coming year.

But that’s 2025.

Looking at another year, you can see that the new cabinet and its plans face major problems. For example, it wants to reduce the burden on businesses and halve the deductibles for health care. But these costs are offset by uncertain revenues. For example, the cabinet wants to reduce the amount of money paid to Brussels. The budget deficit (roughly: revenue minus spending) will increase significantly by 2026, exceeding the EU standard of 3%. In fourteen years, if policies remain unchanged, government debt will also increase significantly, reaching 70% of gross domestic product (GDP), or all income in the Netherlands.

These are the most important conclusions of the economic forecast released by the Central Planning Bureau (CPB) on Friday. These prospects always constitute an important starting point for negotiations on the million-dollar bill. This year will be even more exciting, as the new cabinet still has to work out many issues in detail in the government program for the next few years. Minister Henin still has two weeks to present this budget to the Council of State.

Not too enthusiastic

The minister said after a cabinet meeting on Friday afternoon that he was pleased there had not been any new setbacks in the planning agency’s forecasts. “But there are reasons not to be overly enthusiastic because we are seeing deficits and debts growing.”

The sharp increase in the budget deficit is likely to trigger more discussions in the cabinet. At 2.6% of GDP, it is close to the maximum of 3% agreed in the trunk agreement. The Skof cabinet wants to achieve an average deficit of 2.8% throughout the term of the government. If this does not work, the government has agreed in the outline of the agreement to take immediate additional measures. The coalition parties PVV, VVD, NSC and BBB prefer to reduce spending rather than charge taxpayers more.

The CPB is critical of this strategy. Suppose the government unexpectedly needs to spend more money, or if the proposed cuts generate less money than expected, then the government will suddenly have to announce additional cuts. If the economy is already performing poorly at the time, such cuts could cause unnecessary damage. Companies and households will face even more difficult times.

If national debt exceeds EU-agreed thresholds, governments do not have to count on leniency from Brussels.

The chances of the government shooting itself in the foot here are considerable. In the outlines of the deal, the government proposed a number of cuts that were considered unrealistic. For example, the cabinet wanted to negotiate lower payments to the EU, which should generate €1.6 billion by 2028. Cuts to civil service headcount should generate €239 million by 2025. The CPB expects that neither of these cuts will materialize when calculating the trunk line deal.

To prevent the cabinet from having to cut spending during the slowdown, CPB Director Pieter Hasekamp offered a suggestion at a news conference on Friday. He said the economy is performing unexpectedly well now. He thinks it would be wise to adjust now and spread the tax cuts announced by the government for next year over several years. “Then you also have insurance against setbacks.”

“A burden on future generations”

This year, for the first time, the CPB calculated what government debt will look like in 2038. The CPB did this because new budget rules in Brussels require EU countries to look 14 years into the future. Debt would then reach 70% of GDP. That’s 10% above the Brussels standard and unprecedented for the Netherlands. The CPB wrote that rising debt shows that current policies “are shifting the economic burden to future generations.”

Heining and the Schoof cabinet are very keen to show that they use Brussels standards as a guide. Simply because Heining likes to say that he is strict when it comes to budget rules. The Dutch finance minister also always likes to criticize other countries harshly for exceeding European standards. For example, Wopke Hoekstra attracted the whole of southern Europe when he pointed out the budget rules to other countries, even during the COVID-19 pandemic.

What’s more, the government wants to seek leniency from the EU in many other areas. Heining, for example, wants to reach an agreement to reduce payments to Brussels. Agriculture Minister Femke Wiersma (BBB) ​​wants to lobby for exceptions to the agricultural rules in Brussels. Immigration Minister Marjolein Faber (PVV) wants to ask her European colleagues if there are some immigration rules that don’t have to apply to the Netherlands. The growing national debt, which exceeds the standards agreed by the member states in Brussels, does not help them meet their demands.

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