Economically uncertain times call for measures for today and tomorrow
This is a time of great upheaval for many people. People dealing with the aftermath of a coronavirus infection and experiencing how long it can take to recover. People who have lost their jobs, self-employed people who are getting less work, and employers who have to lay off highly valued employees because coronavirus has reduced the amount of money being made. People whose social lives have ground to a halt.
Coronavirus also affects the budget and the Budget Memorandum. Last year we predicted we would end this year with a small surplus. We know now that the economy will contract sharply this year. The budget deficit is projected to be 7.2% of GDP in 2020 and will remain sizeable next year at 5.5%. Public debt is rising again too.
Because the impact of this crisis is being felt by everyone, the government is providing substantial financial support. The government aims to be a source of stability in these complex and unpredictable times by taking action on three fronts. First, the government is setting aside a large amount of money to retain jobs and support incomes, help employers adjust and limit long-term economic damage. It is also adhering to commitments made in the coalition agreement and in previous years, such as extra investment in education, security and sustainability. And it is taking steps to make the Netherlands less vulnerable to economic shocks in the long term.
It is taking this action fully aware that even investments worth billions of euros will not be able to take away all the pain caused by coronavirus.
Extending support measures and launching a new support and recovery package
The government is extending its support for companies, self-employed people and employees by nine months from 1 October. This ensures people will know where they stand for a longer period. Besides taking action to minimise job losses, the government is also setting aside a large amount of money to help people find different work or adjust their work and to prevent people getting into debt and falling into poverty. In spite of all these measures, it is unfortunately inevitable that some people will lose their jobs and some businesses will go bankrupt.
Pressing ahead with commitments made in the coalition agreement
The government is holding a steady course. The regular budgets allocating money to education, healthcare, the police, social security and much more besides are being put forward as usual. The commitments made in the coalition agreement and thereafter will be upheld. This means that more money will go every year to education and security, action has been taken to reduce emissions of CO2 and nitrogen, the phasing out of gas production in the province of Groningen is being greatly accelerated, taxes on labour are being reduced and the Pension Agreement is being implemented.
Making the Netherlands more resilient
The government is also working to ensure the Netherlands remains prosperous in the future. Compared with the rest of the world, the Netherlands has very good and accessible healthcare and a wide social safety net. The government is setting up the National Growth Fund to ensure these public goods remain affordable in the future so that tomorrow’s generations can also live in an attractive and prosperous country. By investing in knowledge, innovation and infrastructure the Netherlands will increase its earning power.
The government is also taking steps so that necessary adjustments can be made enabling the impact of future economic shocks to be better absorbed. In the labour market, where there is a big difference between people on permanent contracts and people on flexible contracts, the self-employed person’s tax allowance will be further reduced. The details of the new pension system will be further elaborated. And to help first-time buyers in the housing market, they will not be required to pay transfer tax.
The government is doing what is necessary in these uncertain times, but it cannot remove all uncertainty. It is able to hold a steady course because in recent years we have together managed to reduce the national debt. As a result, there is no need now to make cutbacks and we can provide support where it is needed. We will go through this crisis together, on the road to recovery.
| 2020 | 2021 | |
|---|---|---|
| Forecast economic growth | -5% | 3,5% |
| Forecast rise in purchasing power | 2,2% | 0,9% |
| Forecast unemployment | 4,3% | 5,9% |
| Forecast EMU debt | 59,1% | 61,1% |
| Forecast EMU balance | -7,2% | -5,5% |
Expenditure highlights
- Establishment of the National Growth Fund: € 20 billion over the next five years.
- Additional CO2 reduction measures in response to the Urgenda judgment.
- Limits on nitrogen deposition and habitat remediation: over € 5 billion up to and including 2030 (plus € 100 million per year up to and including 2030 for source-based measures in the construction of housing).
- € 295 million for construction of housing in 2021.
- Investment of just under € 2 billion by the Ministry of Infrastructure and Water Management, the Ministry of the Interior and Kingdom Relations and the Central Government Real Estate Agency to maintain railways, roads and waterways will be brought forward.
- A national scale-up facility will be established, drawing on European funding and contributions from private investors.
- The phasing-out of gas production in the province of Groningen will be sharply accelerated.
- € 150 million on a structural basis to fight crime that undermines society.
- € 356 million on a structural basis to meet growing capacity requirements in the criminal justice and asylum system.
- Childcare benefit compensation for parents including implementation: € 500 million.
- € 32 million on a structural basis to address the teacher shortage.
- An additional € 450 million will be spent on education in connection with higher pupil numbers and financial setbacks. This figure will rise to € 482 million in 2025.
- The child budget will rise from the third child: € 150 million a year.
- An extra € 500 million has been reserved on a one-off basis to combat coronavirus in the most vulnerable countries.
- A total of € 652 million is being reserved for the period up to and including 2030 and thereafter € 66 million annually for the compensation package concerning the cancelled relocation of the Marine Barracks to Vlissingen.
- An extra € 130 million will be spent on a structural basis in order to make working in the healthcare sector more attractive. The focus will be on reducing the pressure of work and the administrative burden, enhancing career prospects, improving contracts and giving professionals a greater say.
- The additional municipal budget for youth care will be extended with an additional € 300 million on a one-off basis in 2022.
Revenue highlights
- In 2020 and 2021 policy-related taxes and social insurance contributions (new definition) will be reduced by around € 5 billion. This reduction will entirely benefit individual taxpayers. Policy-related taxes and social insurance contributions are being reduced more sharply in 2020 than envisaged in last year’s Budget Memorandum and consequently the largest part of this reduction will take place in 2020.
- The low corporation tax rate will be reduced to 15% in 2021, the high rate will remain at 25%. The proceeds from freezing the high corporation tax rate will be used among other things to reduce the tax burden on SMEs.
- The government will take corporation tax measures in line with recommendations made by the Ter Haar Committee with a view to making the taxation of multinationals fairer and contributing to healthier debt-to-equity ratios by limiting the deductibility of loan capital and encouraging equity financing.
- The government will introduce a job-related investment tax credit (BIK) for two years. Salaries tax and national insurance contributions will be lowered in percentage terms for businesses that invest.
- The government will reduce the self-employed person’s tax allowance more rapidly in line with the recommendations of the Borstlap Committee. Measures will be taken to compensate self-employed people in the short term, including an increase in the employment tax credit and a decrease in the rate of the first tax bracket to 37.1% in 2021.
- In the housing market, first-time buyers will be exempt from transfer tax. The high rate of transfer tax will be raised to 8% for, among others, investors.
- The government will take action to make rent levels more affordable by reducing the levy on landlords. Housing associations will be required to reduce high levels of rent paid by people on low incomes.
- The tax allowance for savings and investments (box 3) will be raised to € 50,000 and to € 100,000 for partners. This will be financed by a rise in the rate of tax levied on box 3 income.