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'Economic recovery and tax cuts for citizens'

News item | 20-09-2005

For 2006, the government has sought to strike a balance between a sound budget, support for incomes, economic recovery and investments in the economy. Economic growth is forecast at 2.5%.

These are the highlights of the 2006 Budget Memorandum. The Budget Memorandum is issued every year on Budget Day ('Prinsjesdag') and sets out the government's main plans and their financial impact. It also describes the current economic situation. 

Economic recovery
The figure for economic growth of 2.5% is the highest since 2000. The main driving force behind the resurgence in the economy is a rise in exports. Other factors include the improved profitability of Dutch businesses and higher corporate investment.

Consumer spending is expected to rise by 1% in 2006, partly due to the government's measures to underpin purchasing power. Unemployment is set to fall in 2006 from 505,000 to 475,000. Inflation will be an estimated 1%. 

Budget deficit
The budget deficit will total 1.8% of GDP in 2006, within the European norm of 3%. The national debt will rise marginally to almost 56% of GDP but will still remain within the European norm of 60%. 

Purchasing power
In 2006, the government will spend over 2.5 billion euro on measures to bolster purchasing power, comprising some €2 billion in tax cuts and €0.5 billion in increased spending. These measures include:

  • a 78 euro increase in the general tax credit
  • a cut of over 0.5% in employees' unemployment insurance contributions
  • the abolition of occupancy-related property tax
  • a freeze on excise duty on motor fuels
  • a freeze on the charge for connection to the power grid
  • the abolition of school fees for secondary school pupils over the age of 16 and pupils aged 16 and 17 in secondary vocational education
  • an extra 200 million euro for childcare, including provision during and after school hours
  • an income-related care benefit to compensate for higher insurance premiums under the new healthcare insurance system   

Gas revenues
In the Netherlands, 42.5% of gas revenues go to the Economic Structure Enhancing Fund (FES). The FES is used to finance the economic infrastructure. Higher gas revenue means that the economy can now be boosted by an injection of new investment.

The government will set aside a total of 2.33 billion euro for investments in know-how, education and innovation, the environment and sustainability, mobility, space and monuments. Of this total, some €600 million is expected to be spent in 2006. In addition, €1 billion has been earmarked to subsidise windmills at sea over the next few years.

Changes
Various elements of the government's reform agenda will be implemented in 2006 and 2007. Important changes in 2006 include:

  • the introduction of a new healthcare insurance system on 1 January 2006
  • the entry into force of the new Work and Income (Capacity for Work) Act (WIA)
  • the reform of the unemployment benefit system
  • the discontinuation of the tax schemes that made early retirement and pre-pension schemes financially attractive for employees who were under the age of 55 on 1 January 2005
  • a new civic integration system
  • the combined levying of tax and social insurance contributions
  • the allocation of a citizen service number to every Dutch citizen   

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