2020: From surplus to substantial deficit
The national annual financial report and all the ministries’ annual reports were presented to the House of Representatives today by Minister of Finance Wopke Hoekstra. In the annual reports, the government accounts for its policy and for revenue and expenditure in 2020. It also provides insight into how the various ministries have spent the money. The annual financial statements reflect the impact of the COVID-19 crisis.
Financially, we live in a time of contrasts. While some people are saving a lot of money due to closed shops, closed hospitality and entertainment venues, and negative travel advisories, others have put their last savings into their own businesses, or have been forced to live off those savings because no work or orders are coming in. The coronavirus crisis has shown many self-employed people and people on zero-hour contracts how precarious their labour market position is, while people on permanent contracts are generally noticing little impact on their income. Unemployment climbed to 384,000 in 2020 (3.8% of the working population, compared with 3.4% in 2019), but the number of bankruptcies decreased, partly thanks to the support packages.
More expenditure, less revenue
Public finances have also undergone contrasting developments in recent years. For many years in succession, the government spent less money than the treasury received, reducing the national debt by many billions of euros. Then last year COVID-19 struck, and the government suddenly had to spend far more. The support and recovery packages alone cost the government an extra €27.8 billion last year. Tax deferrals worth €13.0 billion were also granted. In addition, tax revenue was lower than expected because people spent less and businesses made less profit. The pandemic also prompted the government to underwrite risk schemes to the tune of €52.3 billion, mainly in the form of guarantees. The national debt was still below 50% of GDP in 2019, but rose to 54.5% in 2020.
Assessment by the Court of Audit
In a response to the annual reports, the Court of Audit will announce today whether the money was spent in a regular, orderly and transparent manner and reached the intended beneficiaries, and what can be improved.
Rapid development of COVID-19 schemes
It normally takes years for a government to introduce a new scheme in a careful, balanced and effective manner. In the spring of 2020, there was suddenly an acute need to help companies survive the lockdown. Quick decisions had to be made to prevent healthy businesses from collapsing. These decisions also had to guard against massive job losses as a result of the restrictive measures that the government considered essential to stop the spread of the virus. The schemes have repeatedly been adjusted to reflect the changing situation and to make them more precise. But, especially at the start, they were not as detailed as they would have been in normal times. The government wants to learn lessons from this for the future.
Economic effects are manageable
In 2019 the economy grew by almost 2%. In 2020 it shrank by 3.7%. And the budget balance ended with a deficit of €34 billion. Such figures are unprecedented. The impact on anyone who has lost their job or has no work coming in is dramatic. However, from a European perspective, and certainly a global perspective, the economic effects appear to be manageable. In previous years, when the economic climate was more favourable, the government reduced the debt. As a result, the debt could be allowed to increase again over the past year. The real economic effects of the crisis will depend mainly on the recovery in the longer term. The support and recovery packages are funded on an incidental basis. If structural expenditure is brought back into line with structural revenue in the long run, the economic blow will be manageable.
In addition to the expenditure associated with the coronavirus measures, money was of course also spent on defence, education, road construction and much more in 2020. The government has to account for this as well. In 2020, extra money was also provided for the climate policy targets arising from the judgment in the Urgenda case, and for reducing the excessive nitrogen levels in the air and soil. Money was also set aside to compensate and support parents who were wrongly accused of making fraudulent childcare benefit claims.