The Dutch government is presenting a budget for 2015 that for the first time in years will be focused less on financial austerity and more on military in light of international conflicts.
The Netherlands is slowly recovering from the crisis. Exports, corporate investments and consumption are all increasing. Economic growth in 2015 is projected at 1.25%. But the recovery is fragile and at risk from international developments. Unemployment remains high and tackling it is one of the government’s top priorities. The 2015 Budget Memorandum strikes a balance between restoring purchasing power and strengthening public finances. It also includes targeted measures to accelerate economic growth, stimulate employment and respond to the current international tensions.
The Minister of Finance, Jeroen Dijsselbloem, will present the Budget Memorandum to the House of Representatives on Tuesday 16 September. He refers to it as a prudent budget. ‘Prudent in the burden it places on individuals and businesses. And prudent in the light of the international turmoil. The Netherlands is in better condition but we are not there yet.’
Given the financial constraints and the challenges facing the Netherlands, the government has set a number of priorities in the 2015 Budget Memorandum:
- The tax burden on labour will be reduced by €1 billion (€500 million to increase the employed person’s tax credit and €475 million to cut the lowest rate of income tax).
- Purchasing power will increase for most people. An additional €160 million has been set aside for the child budget to support the purchasing power of families.
- Defence expenditure will be increased by €100 million on a structural basis. This is a reversal of the recent trend. Additional funding will also be provided on a structural basis for the General Intelligence and Security Service (€25 million) and the Public Prosecution Service (€20 million).
- An additional €375 million will be made available for the first-year reception of asylum seekers in 2014 and 2015 to meet the costs of the high numbers coming to the Netherlands. An additional €570 million will be made available during the government’s current term of office for emergency aid and regional reception.
- An additional €40 million will be provided to ease the transition to the new Social Support Act (WMO).
- A Future Fund will be established to invest in innovation and provide capital for future generations. Its initial capital will be €200 million.
- The reduced VAT rate for construction and renovation work will be extended until 30 June 2015. To encourage mobility on the housing market, the maximum period in which interest payable on residual mortgage debt can be deducted will be extended from 10 to 15 years. An additional €31 million will be made available for housing benefit.
Public finances have improved thanks to more favourable economic conditions and earlier government interventions. After a period of protracted recession, the budget will return to calmer waters in 2015. The EMU balance will come to -2.2% of gross domestic product (GDP) next year, comfortably below the 3% EU deficit standard. We are not there yet though. We will again spend nearly €15 billion more than we receive in revenue next year, and the debt will continue to grow. The longer-term objective remains a balanced budget. The EMU debt in 2015 will be equal to 70% of GDP (€467.2 billion).
Limiting expenditure and creating buffers
Additional measures have been necessary to curb the sharp rise in budget deficits in recent years. Although the government has significantly cut the growth of expenditure, expenditure has increased faster than GDP. Now that the recovery has commenced, there is more scope for a trend-based budgetary policy, in which cyclical fluctuations are accommodated in the budget balance. Additional measures are not necessary. The government has not announced further spending cuts for 2015. Public finances, by contrast, remain sensitive to economic shocks. To bring about a sustainable improvement in them, the government intends to reduce the deficit even further.
Unemployment is unacceptably high. Moreover, the current level of prosperity cannot be maintained without further action. Increasing Dutch growth potential will create new jobs and prosperity. The government has identified opportunities in several areas, such as the labour market and spatial economic development in urban regions. To coincide with the Budget Memorandum, the government will send two letters to parliament, one on removing obstacles to economic growth and employment, and one on how the tax system can contribute.