2022: Public finances in better shape despite unforeseen extra expenditure
The war in Ukraine, high inflation and soaring energy prices followed each other in quick succession in 2022. The government provided protection for Dutch households with a historic package of purchasing power measures including an increase in the minimum wage, increases in various benefits, and reductions in VAT and excise duties. Despite these measures, the public finances ended 2022 in a better state than at the close of 2021. The economic recovery was strong and the Dutch economy grew by 4.5%, considerably higher than the European average of 3.5%.
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.
‘The past, the future and the present all tell the same story: we need sound financial policy,’ explained the Minister of Finance, Sigrid Kaag. ‘We need solid foundations in order to transition to a green economy and take measures to protect nature and the climate, now and in the future.’
Despite all the additional measures taken as a result of the war in Ukraine, the public finances were in better shape at the end of 2022 than a year earlier: the EMU balance showed a small surplus of €88 million, which rounds down to 0.0% of GDP.
This means that expenditure and income across the public sector are in balance. This outcome stems from a relatively high amount of money that has not yet been spent, and from lower spending on coronavirus measures. The government has not yet been able to carry out all the plans in its coalition agreement, due to the constraints faced by the public sector in terms of implementation and the current historically tight labour market. The total underspend for 2022 is €6.2 billion, up €1.4 billion on 2021. Government debt was lower than in previous years. In 2022 it stood at €480.1 billion, or 51.0% of GDP, compared with 52.1% in 2021
Management of central government finances
As in 2021, last year the management of central government finances was largely dominated by issues with substantial financial ramifications, such as the war in Ukraine, the influx of refugees, and compensation for higher energy costs. All these issues demanded a quick response. In addition, dealing with compensatory measures from previous years has also had an impact on financial management.
Nevertheless, there was improvement in financial management in 2022 compared with the two preceding years. The Court of Audit reached a more positive conclusion on regularity in 2022 than in 2021, for example. There was a marked reduction in the financial scale of the dossiers where central government did not comply with all the rules, or where its compliance could not be established with certainty: expenditure falling into this category amounted to 0.58% of the total. In 2021 that figure was 1.01%. Progress in the area of regularity is attributable to the efforts of all government ministries. What's more, the procedures concerned with informing parliament in a timely and correct manner are far better known and are better followed.
The Court of Audit also assessed whether ministries had made errors when providing services or carrying out activities. In 2022 the Court of Audit found 44 shortcomings in operational management at seven ministries. This is a slight fall compared with 2021. However, the task of resolving shortcomings in financial management requires time and attention. Systematic improvements in financial management can only be achieved if the foundations are solid.
Alongside these financial and economic results, the 2022 central government annual financial report also contains an overview of developments in the area of 'wellbeing'. The government attaches importance to the development of wellbeing in terms of people's current quality of life here in the Netherlands, and the degree to which this affects the quality of life of future generations and people elsewhere in the world. The government is pursuing policies aimed at enhancing wellbeing and is taking steps to integrate it into the budget system. The Netherlands Bureau for Economic Policy Analysis (CPB), Netherlands Institute for Social Research (SCP) and the Netherlands Environmental Assessment Agency (PBL) are also devoting attention to wellbeing.
The Monitor of Wellbeing & the Sustainable Development Goals (2015-2022), a survey published by Statistics Netherlands (CBS), presents a mixed picture: the general level of wellbeing in the Netherlands is high, but there is room for improvement on some themes. It is mainly indicators of ‘later wellbeing’, such as the development of natural capital, that are showing 'red’. It is therefore vital that we achieve the ambitious objectives on climate change and the natural environment that we set in 2021 in the coalition agreement.
Moreover, wellbeing is not equally distributed across different sections of the population. A recent study by the SCP on ‘contemporary inequality’ shows that inequality not only depends on economic capital (education, income) but is also linked to social capital (‘who you know’), cultural capital (‘where you fit in’) and personal capital (‘who you are’).
Financial Management Task Force
In mid-2022 the Minister of Finance set up a task force to address the shortcomings in financial management within central government. Where possible the task force has supported government ministries, drawing attention to the issue at administrative and political level. The task force identified a need for enhanced expertise on financial management, the procedures that need to be followed and information sharing. This will again demand explicit attention in the year ahead. Ms Kaag has therefore decided that the task force will continue its work.