Budget Memorandum 2012: steady course in uncertain times
The unrest in the euro zone, the declining growth of world trade and the lack of confidence on the financial markets result in disappointing economic prospects. Tats is why the first Budget Memorandum of the Rutte-Verhagen Government focuses on - in line with the coalition agreement - restoring financial stability, improving public finances, strengthening the ability of the economy to grow and the ambition of a more compact government.
The continuing unrest in the world economy and the uncertainties it brings are an extra incentive for Minister of Finance Jan Kees de Jager to continue with the Government´s roadmap. "The international debt crisis emphasises the importance of healthy public finances. Countries with a high deficit and a large debt are hit the hardest. The Netherlands is not part of that group, but the negative developments of the last few years have also left deep marks here. Intervention is necessary in order to stay financially healthy and to be prepared for setbacks. Budgetary discipline is therefore an absolute priority for this Government. The first positive results of this policy are now noticeable, but the reality is that the 2012 budget has a deficit of about 50 million euro per day. And although that is substantially less than in previous years, this amount shows that a lot of work remains to be done."
Decreasing budget deficit
Public finances in the Netherlands are slowly recovering from the crisis, but have not stabilised yet. In 2012 the budget deficit (EMU balance) is expected to be 18 billion euro. Expressed in a percentage of the economy that results in a deficit of 2.9 per cent of Gross Domestic Product (GDP). This means that in 2012 for the first time since the crisis broke out the Netherlands would - only just - meet the important 3 per cent requirement of the Stability and Growth Pact, the European standard for healthy public finances. At the same time there are major uncertainties and because of the lower economic prognoses the budget deficit will shrink less than intended at the end of 2010 on the basis of the coalition agreement. The budget policy of the government aims at keeping a steady course even if the economy faces a headwind. Extra measures are only needed when the budget deficit gets below the allowed margin by more than 1% per cent (warning margin). However, that is not the case. Therefore no extra cost cutting, on top of the 18 billion cost-cutting package, is included in this Budget Memorandum.
Debt and interest
Public debt (EMU debt) is expected to amount in 2012 to 407 billion euro, or 65.3 per cent GDP. That is an increase of 0.6 percentage point compared to the most recent estimate for 2011. In order to finance the debt the 2012 budget has a budget item of 10.4 billion euro for interest expenses.
In the 2012 Budget Memorandum the Government strongly emphasises healthy public finances, strengthening of the economy, a compact and more efficient government and more leeway for a strong private sector. Problems are tackled, not passed on to future generations. Not even if the approach results in painful, but necessary measures. The Budget Memorandum also pays attention to population ageing and control of health-care costs, two challenges which in the years to come will play an increasing role. There are opportunities too; the open and internationally oriented Dutch economy will profit from the growth of emerging economies such as China, India and Brazil.
The '18 billion cost cutting monitor' shows that the Government is on course with the 18 billion euro cost-cutting package. A start was made with these measures in 2011. In the first year there was a cut back of 2.8 billion euro and in 2012 the cost cutting is expected to increase to 6.5 billion euro. Budgets that face cuts next year include the budgets for development cooperation, defence and childcare allowance. Cost cutting will further increase after 2012 and the 18 billion euro mark will be reached in 2015. Furthermore in 2012 the Government will take additional measures to prepare for financial setbacks in health care and social security. These concern extra measures which ensure that the predefined expenditure ceiling is not exceeded. In 2012 this entails extra measures totaling 2.6 billion euro.