Government plans for 2021
The plans presented by the third Rutte government on Budget Day are summarised below.
Economy and public finances
This is a time of great upheaval for many people – including people struggling with the aftermath of a coronavirus infection, people who have lost their jobs, and self-employed people who are getting fewer orders. After contracting by 5% in 2020, the economy is expected to grow by 3.5% in 2021. Unemployment will rise to 5.9% next year, the budget deficit will come to 5.5% of GDP and the government debt will increase to 61.1%. But the economic outlook is highly uncertain. Much depends on how the coronavirus pandemic in the Netherlands develops and on the evolving medical and economic situation in other countries. In these complex and unpredictable times, the government is seeking to support and strengthen the economy with an eye to the future. And we are able to do this precisely because we reduced our national debt in recent years.
The government is introducing an extensive support and recovery package to support jobs and incomes, help employers adjust to the new situation and limit long-term economic damage. It is continuing to invest in public service provision in areas such as education and security. And it is taking steps to make the Netherlands less vulnerable to economic shocks in the long term. Measures include setting up a National Growth Fund for substantial investments in the Netherlands’ future earning power.
Measures for economy and public finances
Extending support measures – new support and recovery package
- The government has decided to extend earlier emergency packages for supporting businesses, self-employed people and employees (€62 billion to date) by nine months from 1 October 2020. This means that employees and businesses will know where they stand for a longer period.
- In addition to supporting employees, self-employed people and employers, and thereby minimising unnecessary job losses, the government is setting aside €1.4 billion to help people find different work and to tackle debt.
- To further support the economy, planned investments worth almost €2 billion in infrastructure and housing construction will be brought forward.
Continued implementation of existing agreements
- The government’s focus on strengthening public services will continue. For example, it is investing in measures to tackle organised crime that undermines society (€141 million in 2021 and €150 million on a structural basis thereafter) and is setting aside an extra €32 million a year to address the teacher shortage.
- The government is taking additional measures to cut CO2 emissions in response to the Urgenda judgment. In the coming years it will also invest €5 billion in measures to reduce nitrogen deposition and restore natural habitats.
- Gas production in the province of Groningen will be phased out more quickly, falling to zero in an average year from mid-2022.
- Investments are being made in the housing market.
Making the Netherlands stronger for the future
- To preserve and improve prosperity for future generations, a National Growth Fund is being established for investments in long-term earning power. Over the next five years, €20 billion is available to invest in knowledge, innovation and infrastructure.
- Steps are also being taken to improve the functioning of the labour market. This includes lowering the self-employed person’s tax allowance, which will reduce the differences in the tax burden borne by employees and self-employed people.
- The government is taking further steps to future-proof the pension system by fleshing out the details of the Pension Agreement.
Purchasing power and taxes
Purchasing power forecasts are predictions, not promises. That is especially true this year. No one knows for certain how the economy will develop. In a crisis such as this one, purchasing power forecasts say little about how much money you will have in your pocket next year. A far more important factor, for example, is whether you keep your job. That is why the government has presented a support and recovery package, aimed at assisting employees and businesses, helping people find a different job and investing in job creation. If we do look at the forecasts, we see that, on average, most people will be 0.9% better off next year, despite the recession. This is mainly thanks to the government’s tax cuts.
Concrete measures for purchasing power and taxes
- In 2021 the rate in the ‘new’ first tax bracket, which includes the vast majority of people, will be reduced by 0.25 percentage points to 37.1%. The top rate will remain at 49.5%.
- In addition, employees will pay less tax because the employment tax credit will be increased by up to €324 to a maximum of €4,205 (including indexation).
- To provide extra support to people on low incomes, the general tax credit will be raised by €82 to a maximum of €2,837 (including indexation).
- The government is increasing the elderly person’s tax credit by €55 to a maximum of €1,703 (including indexation).
- The child budget for families with three or more children is being increased. From the third child, the amount per child will rise by €617 to €919.
- In 2021 the reduction of the self-employed person’s tax allowance will be accelerated. The allowance will decrease by €360 to €6,670. But self-employed people will not be worse off because, like employees, they will benefit from other tax cuts.
- The tax allowance for savings and investments (box 3) is being raised from €31,000 to €50,000 per person.
- Tax relief for deductible items (such as mortgage interest ) will be reduced from 46.0% to 43.0%.
Business and labour market
The impact of the coronavirus pandemic is not yet over. Public health is the government’s prime concern. But the virus also has major consequences for our jobs and economy. That is why the government has presented a support and recovery package for the economy and labour market, which follows on from two earlier emergency packages. The new package focuses on three pillars: support for businesses; helping businesses and employees to adjust; and investments to create new jobs. This means that current support measures will be extended until 2021. Also see the information on the support and recovery package.
The Tax Plan, too, sets out additional measures to stimulate economic growth during the coronavirus crisis. But the government also wants to provide prospects for the period thereafter. That is why it is pressing ahead with its reforms, including action to create a better, fairer and greener tax system. And public investment of nearly €2 billion in infrastructure and housing construction will be brought forward.
Concrete measures in the 2021 Tax Plan
- Corporation tax: The previously announced reduction of the high corporation tax rate will be scrapped; the rate will remain at 25%. The funds freed up will be used to strengthen the economy.
- The reduction of the low corporation tax rate from 16.5% to 15% will go ahead as planned. Moreover, more SMEs will pay this lower rate in the years ahead. From 2021 this rate will apply to profits of up to €245,000. In 2022 the amount will be raised further to €395,000.
- A new investment tax credit will be introduced in 2021 to encourage businesses to invest. Businesses that make an investment, such as the purchase of a new machine or commercial vehicle, will pay less salaries tax and national insurance contributions. This will give the economy an extra boost.
- The self-employed person’s tax allowance will be further reduced, but this will be compensated by the increase in the employment tax credit and the decrease in the basic rate of income tax from 37.35% to 37.10%. This will reduce the differences in the tax burden on employees and self-employed people. From next year, the allowance will be reduced by an extra €110 a year, until it reaches €3,240 in 2036.
- Multinationals will bear a fairer share of the tax burden, but the business climate will be taken into account. For instance, the offsetting of losses will be limited from 2021, as recommended by the Ter Haar Committee, and we will explore how to ensure more equal tax treatment of equity and debt.
Investing in the Netherlands
The fight against coronavirus demonstrates that prosperity is about more than just the economy. It is also a matter of good healthcare, good education and a safe, clean living environment. The government is therefore sticking to its course. It was agreed in the coalition agreement and in previous budgets that we would invest in public services: defence, police, healthcare, education. This work is still in progress.
In addition to this, the government will do what is necessary to make the Netherlands stronger. It plans to make big investments in housing, so that 51,000 new homes can be built in the near future. A robust set of measures has been introduced to reduce CO2 emissions, and over the next few years the government will bring forward planned investments in roads, railways and waterways. For the longer term, a National Growth Fund is being established, to finance big investments in the innovations and technologies that will provide our future income. This will make the Netherlands stronger, so that today’s young people can be certain of a job and good public services.
Concrete measures for investing in The Netherlands
National Growth Fund
- The National Growth Fund will focus on public investment to boost the Dutch economy’s long-term earning power. These investments are needed in order to tackle challenges to economic growth, including demographic ageing, climate change and the stalling of productivity growth. €20 billion is available for the next five years.
- Over the coming period, the government will continue to focus on managing the coronavirus crisis. Almost €6.7 billion has been made available for measures to tackle the crisis.
- The ‘Working in Healthcare’ action programme will be expanded and made permanent. The government will earmark an extra €20 million for this purpose for 2021, rising to €130 million a year from 2023.
- The government will provide an additional €300 million on a one-off basis to municipal authorities for youth care services in 2022, on top of the funding that it previously made available for the period up to the end of 2021.
- €200 million has been made available for prevention of homelessness, reforms in the hostel system and supported housing for the homeless in 2020 and 2021.
- There is a shortage of affordable housing, and the housing market is under huge pressure. The government will therefore again launch a robust package of measures so that the building of new homes can continue, and first-time buyers and renters are given more opportunities.
- Last year the government made €2 billion available for the housing market. It is now clear that 51,000 new homes are to be built with the first €290 million under the housing construction grant scheme, 65% of which will be in the affordable housing sector. And the reduction in the levy that housing associations are charged on new homes could lead to a further 150,000 new homes in the social housing sector over the next five years.
- The government will introduce further measures in 2021, on top of the measures announced in the spring. In the short term, the building of new homes will be accelerated thanks to the earlier provision of increased funds under the housing construction grant scheme. This means that €450 million will be spent on new homes in 2021.
- To achieve all the plans for new homes in the Netherlands, it is important to eliminate any obstacles caused by nitrogen pollution. €100 million will be earmarked for this purpose each year up to 2030.
- Obstacles faced by municipal authorities and housing associations will also be tackled, and efforts will focus on other ways of providing new housing, such as converting shops into homes. The building of new homes will be increased in the longer term by speeding up decision-making on major regional developments, studies of the potential for central government to pursue an active policy of acquiring and developing land, and more specific arrangements with municipal and provincial authorities concerning planning capacity and the production of new homes.
- The government will exempt first-time buyers from transfer tax to strengthen their position in the housing market, and reduce the amount they need to save before they can purchase their first home.
- Housing association tenants who pay a high rent relative to their income may apply for a rent reduction in 2021. In this way, the government hopes to keep rents affordable.
- The implementation of the National Climate Agreement will continue as planned wherever possible. Work will continue on renewable energy projects such as offshore wind farms. The government has also introduced extra measures to reduce CO2 emissions in the short term, partly to comply with the judgment in the case brought by Urgenda.
- Over the coming year the government will invest €60 million in measures to improve the sustainability of industry. The money will be spent on testing and improving CO2-reduction technologies, scaling up green hydrogen production, and testing and improving carbon capture, utilisation and storage (CCUS) techniques.
Education and culture
- An extra €32 million a year will be set aside to address the teacher shortage, on top of the money previously allocated for this purpose. This extra annual amount will bring the total to €811.7 million on a structural basis and €358.7 million on an incidental basis.
- €450 million has been made available on a structural basis to compensate schools and universities for higher than expected student numbers.
- Almost €500 million extra is available to prevent students from falling behind as a result of the coronavirus pandemic. The government intends this to be used to help students catch up, retain as many apprenticeships and internships as possible, and help delayed students in their graduation phase. (This was announced in the package of education measures.)
- To help ensure school-leavers do not become unemployed, the government made some €350 million available in its recent support package to tackle youth unemployment.
- During this government’s term in office some €325 million more will be spent on cultural heritage, and €80 million more on culture on a structural basis.
- €300 million has been set aside in 2020 to support artists and professionals in the cultural and creative sector during the coronavirus crisis. In August it was decided to provide an additional package worth €482 million for the first half of 2021.
Security and migration
- In 2021 the government will make €141 million available for a broad offensive against organised crime that undermines society. In subsequent years, €150 million will be provided for this purpose on a structural basis.
- The government has made €40 million available for 2021 to eradicate the backlog in the criminal justice system resulting from the coronavirus pandemic.
- The Ministry of Justice and Security will receive an extra €45 million in 2021 for the further digitalisation of the criminal justice system.
- As a result of the continuing influx of asylum seekers and the backlog in the processing of asylum applications, an extra €174 million will be made available for the asylum system in 2021. This funding is intended mainly for the Central Agency for the Reception of Asylum Seekers (COA) and the Immigration and Naturalisation Service (IND).
- The Netherlands has a good infrastructure. To keep it this way requires ongoing investment. Over the coming years, the government will make €1.9 billion available to speed up the maintenance and replacement of roads, railways, waterways and dikes. This will also help the construction industry in these difficult times.
Structural measures to tackle nitrogen pollution
Since the decision of the Council of State in May 2019, the government has been working hard to meet its obligation to reduce emissions and deposition of nitrogen, and restore natural habitats. Before the issuing of permits for economic activities like the building of new homes and roads can be resumed, it is vital to reduce nitrogen emissions. It is precisely these sectors that will need to resume their activities in the recovery phase after the coronavirus crisis. The government has therefore put together a substantial package of investments and measures worth over €5 billion up to the end of 2030. This will reduce nitrogen emissions, and restore and strengthen natural habitats. All sectors will have to contribute to this effort.
Concrete measures to tackle nitrogen pollution
- The government will invest over €2 billion in efficient measures at source in agriculture, industry, construction and transport. In agriculture, the measures will involve pasturing cows, better housing for livestock and financial schemes for farmers who want to switch to sustainable farming or quit farming altogether.
- To restore and strengthen natural habitats, from 2021 to 2030 a substantial amount of extra funding will be made available, rising to €300 million a year. These measures will be fleshed out as part of the government’s and provincial authorities’ joint nature programme. The government and the provincial authorities will also monitor the progress of these efforts.
- €125 million of the budget reserve for nitrogen will be used to restore natural habitats. The funding will be allocated to restoration projects in nature areas, such as measures to improve hydrology and acquire ‘key hectares’ to prevent the fragmentation of habitats.
- The goal is for at least half of nitrogen-sensitive natural habitats in Natura 2000 areas to have healthy levels of nitrogen by 2030 (i.e. below the ‘critical deposition level’). This will create space for new housing, infrastructure and farming.
The Netherlands in the world
The coronavirus crisis has highlighted how closely the Netherlands is connected to the rest of the world. Global developments can have a direct impact on our country. The Netherlands must be prepared for all possible external threats and events. The Dutch diplomatic network and defence organisation, development cooperation and trade policy have a vital role to play in this regard. In 2021 the government will continue to focus on preventing insecurity, defending the Netherlands and strengthening international cooperation and the international legal order. The government works in many different ways to promote democracy and human rights all over the world.
- The defence organisation provides the basis for a stable and secure country. Over the past few years the Netherlands has invested in enhancing and modernising its defence capabilities. We will continue with these efforts in 2021, replacing and modernising our Chinook transport helicopters (€208 million), purchasing the F-35 (€887 million) and a Combat Support Ship (€114 million), and working on a new, future-proof personnel model.
- The Netherlands is expected to spend 1.48% of GDP on defence in 2021. This increase is connected with projected economic developments.
- Thanks to the International Desk, the government will be able to ensure that Dutch nationals abroad can access some 60 central government services through a single channel from the end of 2021.
Global impact of COVID-19
- COVID-19 is causing a global crisis on an unprecedented scale, the most severe crisis since the 1930s, according to the IMF. The impact on already weak healthcare systems has been huge, but the crisis is also having a major impact on the economy, food security, migration and national security.
- The government has decided to make €500 million extra available this year to help the most vulnerable countries fight coronavirus.
- The government will also lobby for fair and affordable access to COVID vaccines, tests and treatment worldwide, and has contributed to the fund established for this purpose (Gavi COVAX Advanced Market Commitment), as well as other funds. The government is also contributing to the development of affordable vaccines (through the Coalition for Epidemic Preparedness, CEPI) and diagnostics (through the Foundation for Innovative Diagnostics, FIND).