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5th Dec 2023

Dutch top officials call for €17bn spending cuts

  • Debt levels dropped significantly during Dutch finance minister Sigrid Kaag's term despite higher spending (Photo: Wikimedia)
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The new Dutch cabinet will need to make deep spending cuts by 2028 in order to bring its budget in line with EU fiscal rules, according to a government advisory body report published on Monday (11 September).

The 'Studiegroep Begrotingsruimte (SBR)' traditionally present a budget proposal before fresh elections, which are due in November this year, with former EU Green Deal chief, the socialist Frans Timmermans, seen as one of the frontrunners.

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Whoever leads a new cabinet is advised to cut €17bn, or roughly 2 percent of GDP, to "ensure" debt sustainability from 2028," wrote the top officials who are not named in the report.

Despite having little time to prepare the report due to the sudden fall of the last government led by longtime prime minister Mark Rutte, the study group noted it had seen enough to draw strict conclusions and said the previous government had mishandled finances and needed a "course correction."

"During the past government term, insufficient strict choices were made, and the decision was made to resolve societal challenges mainly by using additional funds." the officials write.

They question the amounts earmarked for climate spending and dealing with the nitrogen crisis, which adds up to €60bn and suggest some subsidies could be replaced with "norms and taxes," lowering government expenditure.

According to the report, the country's budget deficit is set to reach 3.6 percent of GDP in 2028, exceeding the three percent limit set by the currently suspended EU fiscal rules, which are due to come back into force in 2024.

Austerity 2.0?

The call for fiscal consolidation comes even as the Dutch debt ratio fell to 49 percent of GDP at the end of 2022, three percentage points lower than at the start of the same year despite the Russian invasion of Ukraine and the ensuing energy crisis.

This puts the country among the least indebted countries in Europe and below the 60 percent debt ratio as outlined by EU fiscal rules.

The Dutch top officials "acknowledged the need for investments in the future" and called for "sensible reforms" that "take into account measurement and implementation."

But the called-for spending cuts are significant and comparable in absolute terms to the €16bn in cuts made during Rutte's second "austerity government" (2012-2016), which "resulted in the longest recession and largest impoverishment in post-war Dutch history," Dutch financial geographer Ewald Engelen recently wrote in the New Left Review.

These cuts were made following a similar call for fiscal consolidation by the study group, whose advice is traditionally followed by Dutch cabinets.

The International Monetary Fund at the time also concluded that strict austerity had delayed recovery in the country and called on the Dutch government to loosen spending restrictions.

More recently, the IMF questioned the efficacy of budget cuts as a way to bring down the debt and concluded that "a broad range of well-established methods in the empirical literature confirms that fiscal consolidation does not reduce debt ratios."

But increasing healthcare costs, pensions and climate change require the upcoming government to take steps while avoiding "unnecessary economic and societal damage in the short term and in the future," top officials conclude, adding that "the Dutch economic outlook is good given the circumstances, which is precisely why it is wise to make a course correction now."

The EU Commission recently revised down Dutch growth projections to 0.5 percent this year.

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