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Budget Memorandum: EMU surplus 0.2% GDP

News item | 19-09-2006

A budget surplus of 0.2% of GDP is forecast for 2007. The government intends to improve the economic structure, purchasing power, public security, and youth policy, while keeping government finances on a healthy footing.

These are the highlights of the 2007 Budget Memorandum. This document appears every year on Budget Day ('Prinsjesdag') and sets out the government's main plans and their financial impact. It also describes the current state of the economy.

Economic recovery
The economy is expected to grow by 3% of GDP in 2007. As a result, more people will have better prospects of finding work. According to the Netherlands Bureau for Economic Policy Analysis (CPB), the number of jobs will grow by 104,000 in 2007, while unemployment is set to fall further, by 55,000.

People who find work, possibly for the first time, will enjoy a sharp rise in income. For those who had previously been on benefit, the average rise will be 15%. 

The rate of inflation will remain low in 2007; the CPB puts the figure at 1.5%. In 2007, private consumption is expected to increase by 2% on 2006. Thanks to the expanding economy, people will have more to spend in 2007. Wages are expected to increase by 2%, slightly more than in previous years.

Government finances
Government finances have recovered from the low point in 2003. Reasons include economic growth, reforms and budgetary policy in recent years.

A budget surplus of 0.2% of GDP is expected in 2007. The first Budget Memorandum of the second Balkenende government was expecting a deficit of 0.6% of GDP in 2007. On this point, the Netherlands scores far better than the eurozone average. The projected debt ratio for 2007 is 48% of GDP. This is the most favourable figure for 25 years, and over 10% below the European average.

Measures
In 2007 the government will earmark extra money to extend existing policy and cover expenditure that is higher than expected. It will be spent on childcare, police tasks, civic integration, the system of indefinite detention orders (especially juvenile offenders), video surveillance, aliens police, nursing homes, infectious diseases, water safety, greenhouse farming, shipbuilding, fisheries, environment and education.

On balance, taxes will be cut by one billion euros in 2007. This reduction will be spread evenly among individuals and businesses.

The government is taking various measures to improve everybody's purchasing power, with special focus on certain groups:

  • parental childcare contributions will be reduced by 125 million euros, and the amount of child benefit paid out will increase by the same amount;
  • employers' contributions to childcare will be made compulsory;
  • the tax rate in the first tax bracket will be reduced by 0.5 percentage points, and the tax rate in the second tax bracket by 0.05 percentage points;
  • unemployment benefit contributions will be reduced by 1.35 percentage points, giving a modal family an extra 200 euros a year;
  • old age pension and surviving dependants' benefit will be increased by 48 euros per person;
  • the costs taken into account when calculating healthcare premiums will be reduced so that only a limited rise in premiums is required;
  • the consumer charge for the electricity production (environmental quality) grant scheme will disappear from energy bills for good in 2007, leaving households 52 euros per year better off;
  • the overall result of these measures is that households' purchasing power will increase by about 1%.  

Economic structure and business climate
The government wants to help create an attractive and competitive business climate, both for large companies and for small and medium-sized enterprises. The measures include the following:

  • In 2007 the corporation tax rate will be reduced from 29.1% to 25.5%. Entrepreneurs whose profit is subject to income tax will receive a 10% profit allowance for small and medium-sized enterprises.
  • Over the next few years, thanks to rising natural gas revenues, 1.9 billion euros from the Economic Structure Enhancing Fund will be allocated to knowledge, education and innovation projects, spatial economic development and infrastructure acceleration. 
  • Reducing the administrative burden. In 2007 the government will take further measures to root out superfluous or unnecessarily complicated legislation. The number of licences will be reduced by one million. In the course of 2007 the government expects to achieve the target for the second Balkenende government: a 25% cut in the administrative burden,  

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