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2010 Budget Memorandum: The Netherlands in and after the crisis

Newsrelease | 15-09-2009

The scale and impact of the crisis are slowly becoming clear. The crisis began on the financial markets but is now affecting the economy with a delay, the labour market and people’s finances. In 2010 more businesses will go bankrupt and the number of unemployed will rise to over 600,000. In addition, most people’s purchasing power will fall, though at the end of next year it will still be higher than it was at the end of 2008.

How the economy will develop in 2010 is still very uncertain. It is crucial to continue the stimulus measures and not to damage the fragile economy as it begins to pick up again. In 2010 the government will continue uninbated to implement the anti-crisis package adopted in March 2009. The measures for 2010 will focus on creating and preserving jobs, strong and resilient business community and limiting any further drop in demand. At the same time, the measures will enable the Netherlands to emerge from the crisis stronger, smarter and more sustainable. Central and local government together will set aside a total of over €4 billion for this purpose in 2010.

The government has already agreed that as soon as the economy regains sufficient strength and economic growth rises above 0.5%, a start will be made in 2011 on restoring the health of public finances. In addition, measures have been taken to improve the long-term sustainability of public finances.

The crisis has caused the Dutch economy to shrink and inflicted long-term damage on public finances. Even when the economy will expand again by an average of about 2% a year, as it was before the crisis, it is likely that the deficit will barely improve and the national debt will increase by about €30 billion a year. The labour market, climate change and the financial markets also present major challenges. The 2010 Budget Memorandum therefore looks not only at the next budget year but also at the years beyond. The government will clearly have to make fundamental choices in the coming period. This means that a great deal of government policy will come up for discussion over the next few years. To talk about this with one antother, and to weight the various options and   where possible to implement , the government has formulated seven ambitions for the Netherlands after the crisis:

• putting the financial sector in order;
• sustainable energy and climate policy;
• fighting unemployment and increasing labour participation;
• revitalising the (semi) public sector;
• Growth, knowledge innovation and enterpreneurship;
• broad-based reviews;
• reforming the tax system.

With regard to the last two points, it should be noted that since public finances are deteriorating, we need to cut our coat according to our cloth. The EMU balance will fall to -6.3% of GDP in 2010 and the national debt will rise to almost 66% of GDP. Money will have to be saved to repay the national debt and fund new policy. Given the nature and scale of the problems, the government has decided to launch a broad-based review. It plans to reassess budgetary spending and the use of tax revenue and premium contributions in 19 policy areas. For each area, different options will be set out, including one in which 20% savings can be made.