Speech presenting the Budget Memorandum
Speech presenting the Budget Memorandum by the Minister of Finance Jeroen Dijsselbloem.
After a difficult period in which the Netherlands climbed out of the deep recession more slowly than some of its neighbours, the Dutch economy is now growing faster than expected. The Netherlands Bureau for Economic Policy Analysis (CPB) has forecast 2% growth for this year and 2.4% for next year. This means that the Netherlands has emerged from the crisis.
The economic recovery has also become broader. It was discernible first in exports. Last year, investments began to grow as well. And consumer spending is rising. This year Dutch people are again spending more, for the first time in five years. Household purchasing power will increase this year and next, thereby boosting confidence. For the first time in a long while, there are more internet searches for ‘pay rise’ than ‘redundancy pay’. This is also clearly reflected in the housing market, which has started to rebound. The number of mortgage holders in negative equity is falling fast.
The broad recovery is also good for public finances. Economic growth is generating higher tax revenue, causing a sharp drop in the budget deficit – to 2.2% of GDP this year, and 1.5% next year. In 2009 the deficit stood at 5.4%. The national debt as a percentage of GDP is falling for the first time after rising sharply since the crisis began. At the end of next year it will be 66.2%. And the Netherlands now has a sustainability surplus again. That is good news for the future.
These improved budget figures create scope for extra spending on certain social priorities. Childcare will be available for all pre-school children, and paternity leave for partners will be increased from two to five days. Nursing homes will get an extra €210 million on a structural basis to improve residents’ quality of life. An extra €60 million will be spent on international missions. Finally, the government will invest a total of €340 million in our armed forces.
Besides these social priorities, the government has earmarked €470 million to fund a public sector pay agreement after several years without a pay increase. The figure will rise to €1.3 billion on a structural basis.
Certain unforeseen changes of course have also had to be made. For instance, gas revenues have declined much faster than expected. They have dropped by half since 2012. The shortfall next year will be €5 billion. Half of this figure is due to falling prices. The other half is a consequence of the need to improve safety in Groningen.
We have also provided funds for the reception of refugees. For the current year, an extra €650 million is available for the reception of asylum seekers, and extra funds have been reserved for the years ahead.
The outlook is positive in the eurozone. Greece is clearly an exception and will have to do a lot of work to turn the situation around. But there are many positive signs in the other eurozone countries – our most important trade partners. The euro countries that have radically reformed their economies in recent years, such as Spain, Ireland and the Baltic states, are now growing fast. The Netherlands is one of these leading nations.
Things are better than expected. This is because the Dutch people have made a major effort in recent years, which has structurally strengthened our economy and budget. It is also due to favourable circumstances. The price of oil, interest rates and the euro are all low. These favourable external factors also entail a risk. The United States is showing excellent growth, but it is unclear what effect the expected increase in US interest rates will have. The Chinese economy, the second-largest in the world, is cooling, and that is not good news for the Netherlands, the world’s sixth-biggest exporting country. Nor is the unstable geopolitical situation in Ukraine, parts of Africa and the Middle East.
Things are better than expected, but not good enough. That’s why we are making €5 billion available in next year’s budget to reduce the tax burden on labour.
Unemployment is still too high and is falling too slowly. Too many people who want to work are still jobless. People in work with low incomes have trouble making ends meet. The €5 billion tax cut will increase consumer spending in the short term. This will boost production and the demand for labour, providing a welcome stimulus to employment.
The long-term effect we are aiming for is a higher growth potential for the Dutch economy. We cannot be satisfied with a projected average annual growth rate of 1.5%. The targeted reduction of tax on work will lead to a more efficient labour market and greater labour participation.
The €5 billion tax package includes a substantial increase in the employed person’s tax credit, a rate reduction in the second and third tax bands, incentives for employers who hire lower-paid workers, and an increase in childcare benefit for all income groups. All these measures will have a lasting impact.
In addition, the government will take targeted measures to restore purchasing power, so that all groups benefit from the economic upturn.
There will be no major reform of the tax system. Unfortunately, there is not enough support in either house of parliament at present. But that’s no reason to do nothing. In addition to targeted tax cuts, the government will present specific reforms to wealth tax, car taxes, tax schemes encouraging innovation, and childcare benefit.
Many reforms have been initiated in recent years. The government has taken various structural measures to strengthen the Dutch economy – in the labour market, the housing market, the care sector, energy policy, and the financial and education sectors. The government drew up the plans, the two houses of parliament approved them and the results were enshrined in legislation. This marks the start of the reform process. We are now in a crucial phase: implementation. We need to carry out the reforms with due care if we are to achieve our aims: a society built on a vibrant economy, with a strong focus on people and creating opportunities.