Resilience and recovery in 2021 despite the coronavirus pandemic
Coronavirus continued to dominate life in the Netherlands in 2021. Many people became ill and restrictions remained necessary. Conditions were tough for businesses and the government once again spent a great deal on support and recovery packages. Nevertheless, the Dutch economy recovered quickly. Following a contraction in 2020, there was strong economic growth of 5% in 2021. As a result, the public finances ended the year in a better state than expected.
These conclusions can be found in the Central Government Annual Financial Report and the Central Government Annual Report, submitted to the House of Representatives on the government’s behalf by Minister of Finance Sigrid Kaag on Accountability Day.
‘We look back on 2021 as a year of strong recovery, with high economic growth and low unemployment,’ the Minister said. ‘Now we’re going to have to call on the flexibility and resilience demonstrated by the Dutch people during the coronavirus pandemic once again as we deal with the terrible war in Ukraine. In addition to causing enormous human suffering, this war also has financial implications. We will have to respond to these extraordinary times together as well, by sticking to our course and making careful choices.’
In order to assist businesses affected by coronavirus and ensure that employees kept their jobs, the government continued to provide support packages in 2021. These support packages and the measures to combat the pandemic, such as vaccinations and test capacity, accounted for expenditure of more than €30 billion.
Public finances and economic developments
Despite the unforeseen extra expenditure related to the coronavirus pandemic, the public finances were in better shape than expected in 2021. This was partly thanks to the rapid economic recovery. Government tax receipts increased and the fact that more people were in work reduced spending on benefits. The total government budget deficit (central government, municipalities and other public authorities) was 2.5% of gross domestic product (GDP). Government debt was 52.1% of GDP.
Strong economic growth of 5.0% was achieved in 2021, as the economy rebounded from the economic blow dealt by the coronavirus pandemic in 2020. There were historic shortages in the labour market, with unemployment remaining low (4.2%). However, the tight labour market did not lead to strong wage growth. Wages rose on average by 2.2%. Inflation averaged 2.7% in 2021, but rose substantially in the final months of the year to more than 5%.
Rapid development of compensation schemes
In the annual reports the government reviews revenue and expenditure in 2021 and sheds light on the various ministries’ spending. In its response to the annual reports, the Court of Audit will today indicate whether the money was spent in a regular manner and what can be improved.
The management of central government finances remained under pressure in 2021, as it had been in 2020. The year was dominated by the coronavirus crisis, compensation schemes for Groningen and childcare benefit rectification measures. Ministries devised a wide range of schemes under a great deal of pressure and in some cases the speed at which this was done had an adverse impact on the regularity of financial transactions.
The government wants to reverse this trend by making extra efforts to ensure that financial processes are managed with due care. This will involve for example reassessing the financial frameworks, such as the Central Government Financial Management Order. The aim is to prevent incidental irregularities from becoming structural. The government also wants to preserve an orderly budget process and concentrate budgetary decision-making at a single point in time. It is crucial that the process is not rushed, in order to ensure that all interests involved can be weighed properly and that all the applicable rules can be followed. This will help improve policy and promote the regularity of the public finances.