Dutch Budget for 2014 Brings Prospect of Sustainable Economic Recovery

Dutch Budget for 2014 Brings Prospect of Sustainable Economic Recovery

The Dutch government is taking another important step toward sustainable economic growth. Efforts to bring about robust public finances and a fair distribution of income are an inseparable part of this process.

This is the main message of the Budget Memorandum that Minister of Finance Jeroen Dijsselbloem presented to the House of Representatives on Prinsjesdag (Prince’s Day) today.

The Netherlands is still a rich and prosperous country. Nevertheless, the financial crisis has exposed substantial vulnerabilities – in Europe, in the financial sector and in the Dutch economy.

Years of high economic growth in the Netherlands were accompanied by the accumulation of debts by individual citizens and banks.

“This is part of the reason why individuals, businesses and banks are now confronted with the need to strengthen their balance sheets,” said Mr. Dijsselbloem at the presentation of the Budget Memorandum to the House of Representatives. “This kind of balance sheet crisis results in slower economic recovery than expected.”

With an extensive package of reforms in the areas of health care, the housing market and pensions, the government is working toward sustainable economic growth.

The national debt has risen sharply over a short period of time. Since the beginning of the crisis, the debt has increased by €150 billion as a direct consequence of successive budget deficits. Intervention is needed to avoid leaving future generations with a large bill.

This is the background against which the Rutte-Asscher government has presented a package of measures designed to achieve structural savings of €6 billion. These measures are principally focused on health care, social security and the public sector.

In this way, the trend of continually rising healthcare expenditure will be further curbed. With a view to efficiency and transparency in social security, a household benefit will be phased in that will merge a number of existing benefits.

In the public sector, expenditure on salaries will be limited by putting work before income. Together with a number of tax and social insurance contribution measures, such as non-indexation of tax brackets and extension of the crisis levy, this will bring the government budget more into line with the new economic reality.

Implementation of the cutbacks will result in the expected budget deficit being reduced to -3.3% of gross domestic product in 2014 (€613 billion). Without intervention, the deficit would rise to -3.9%. Next year the national debt will be 466 billion, entailing interest expenditure of €11 billion, and the economy is expected to grow by 0.5%.

In putting together these measures, the government made a decision to limit the impact on employment and enterprise as far as possible and to spare education. In addition, the government wishes to make better use of existing capital to reduce debts and make investments possible. It is therefore temporarily extending the exemption from gift tax and making it possible to redeem the full entitlements to existing annuities in one go in a tax advantageous manner.

In addition, the government is taking a number of measures to support lending to businesses – especially innovative businesses – and has drawn up an ambitious energy conservation program following agreements with employers’, employees’ and environmental organisations. For example, there will be a revolving fund to grant loans for the purpose of energy conservation. In cooperation with pension funds, banks and insurers, the Netherlands

Investment Institution will be set up to encourage long-term investments in particular.

Putting balance sheets in order will take time and the process will not always be smooth. There are no easy or quick solutions. Everyone will need to make a substantial effort as we work towards recovery. In this regard the government is continuing to pay extra attention to the consequences for purchasing power. The Budget Memorandum therefore contains a number of measures targeted at a balanced distribution of income, such as a one-off payment to people on low incomes.

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