Presentation of 2017 Budget Memorandum
Presentation of 2017 Budget Memorandum by Jeroen Dijsselbloem, Minister of Finance, Tuesday 20 September 2016.
On this Budget Day, I would like to present to you the fourth Budget Memorandum of the Rutte-Asscher government. With elections next year, all political parties are currently making plans for the country’s future. And I hope they will ask the Netherlands Bureau for Economic Policy Analysis (CPB) to calculate their impact. At the same time, voters are wondering whether politicians will be able to deliver on the new plans and ambitions they are now announcing.
This Budget Memorandum shows that, once again, there is at least a firm basis for those plans and ambitions. A basis we can build on. A basis that had to be laid on shaky ground. The Netherlands, with its open economy, was hit hard by the international crisis. The budget deficit rose more quickly in 2009 than in other countries. Hidden weaknesses in our economy were mercilessly exposed. Part of the growth of previous years proved to be far from sustainable. Compared with our neighbours, the Netherlands’ burgeoning banking sector was dealt a huge blow. Even greater damage was averted by a large injection of taxpayers’ money. Our housing market, inflated by high mortgage borrowing, collapsed. Our pension system proved a lot less robust than had long been assumed. The Netherlands’ creditworthiness came under pressure and had to be restored.
Madam President, it is true that drastic action has been taken in the Netherlands over the last few years, more so than in some neighbouring countries. It is also true that cutbacks can cost growth and jobs in the short term. But in assessing whether a different approach to the crisis could or should have been taken, we cannot ignore the Netherlands’ specific circumstances.
The figures show that the Netherlands has picked itself up. We have come a long way. At the height of the crisis, the budget deficit was over 5% of gross domestic product (GDP). We have gradually put the budget in order and carried out a number of urgent economic reforms. Because of this approach the Netherlands is now in far better shape than it would have been if we had taken half measures.
Financial setbacks like reduced gas revenues (€7.5 billion relative to the baseline) presented serious challenges.
Nevertheless, the deficit has fallen to 1.1% of GDP, and next year it will fall further to 0.5%. Government debt will decrease further to 62% of GDP next year. The longer-term outlook is perhaps more important than the annual deficit and debt figures. In that regard, we have reached a historic point.
For the first time in many years, public finances are again sustainable in the long term. This means that our children and grandchildren can count on there being enough money for education, social security, healthcare, dike maintenance and other key services.
By putting public finances on a more even keel, we are increasing our ability to withstand future setbacks and are therefore better protected against risks to the treasury. This is possible because the economy will grow by 1.7% this year. That figure is the result of human effort. I am not referring to politicians, but to ordinary Dutch citizens. People who had lost their jobs sought new work. Many Dutch people are working longer. Businesses persevered and discovered fresh opportunities. And homeowners kept repaying their mortgages. But many people have not yet made good the damage inflicted by the crisis. After periods in which unemployment increased by 20,000 people per month, since mid-2014 it has been gradually falling. It has now dropped below its level when the government took office.
Nevertheless, there are still many too people without work. In 2017 a new tax credit will become available that will make it cheaper for employers to hire people at the lower end of the labour market. This is part of a €5 billion package of tax cuts which is mainly aimed at workers on low incomes.
Since the economy is improving on many fronts, we can also make money available to strengthen the Netherlands and further support purchasing power. As far as the latter is concerned, the main focus at present is on those who have benefited least from the economic recovery: the elderly and people on low incomes.
Reviewing purchasing power is standard practice every August. Every year we take a careful look at who is being positively or negatively affected by economic developments and government policy, and make any adjustments required. Some MPs would like to end this practice. But it is partly because of this annual exercise that the Netherlands is one of the countries with the smallest income disparities in the world. This does not happen by itself. That’s why fair distribution is one of the three pillars of the government’s policy.
Opportunities for children
Unfortunately, a child’s life chances can all too often be predicted by looking at where they live and who their parents are. In addition to its purchasing power measures, to which it is allocating over €1 billion, the government will spend another €100 million on tackling child poverty – a very practical and targeted measure. If a lack of money is an obstacle to joining in fully at school or being able to take part in sport, we need to do something about it. The government is also setting aside money to promote equal opportunities in education.
Security and defence
In addition, the government cannot close its eyes to terrorist attacks and armed conflicts. The National Police and the armed forces need more resources to reduce risks, though it’s worth noting that the Court of Audit reported this year that the problems at the National Police and the Ministry of Defence cannot be solved with more money alone. In order to put things right, clear choices need to be made on how the money is spent and managed. The same applies to the Tax and Customs Administration’s investment agenda.
As in the Netherlands, economic recovery is continuing in the rest of Europe and the eurozone in particular. A couple of years ago, countries enjoying economic growth were an exception, whereas this year even Greece finally seems to be on the up again. Eurozone growth is expected to average 1.6% this year and the average deficit will drop below 2%. The figures have therefore improved, but there are new risks that need to be addressed.
The outcome of the British referendum is not good for the United Kingdom, the Netherlands or the EU. The government therefore believes it has a responsibility to take the lead in a modern Europe that can offer citizens prosperity and security. The agenda in the eurozone remains the same:
- gradually putting budgets in order;
- boosting competitiveness through further reforms;
- further stabilising banks; and
- supporting investment for more new jobs and opportunities.
Madam President, the economy is growing steadily again, public finances are healthier and businesses are showing more confidence in the future. But there are still too many children lagging behind, too many people out of work and too many energetic entrepreneurs who cannot afford to implement their plans.
So we must not allow an election year to be a lost year. After years of economic recovery, we now need to shift our attention to investing in new opportunities. Major investments are required to meet big societal challenges, like the energy transition or improving sustainability, accessibility and education. At the same time, small and medium-sized businesses are finding it difficult to fund new investments, especially the expansion of promising start-ups. The government is already facilitating financing in many ways: through loans, venture capital, guarantees and insurance. This reflects a shift in emphasis from providing grants to supporting finance, which is now also discernible at European level with Jean-Claude Juncker’s Investment Plan for Europe. Most European countries are responding by creating a national promotional bank, which combines instruments so that new financing needs can be met quickly and effectively.
Before the end of its term in office, the government will present a proposal to support these new investments by pooling the many resources at our disposal and putting them to better use. This will ensure that we do not miss any opportunities for the future.
Madam President, budgeting once was referred to as ‘a method of worrying even before money is spent’. A nice variation on ‘governing is looking ahead’. To be truly able to look ahead, even to the next four years, a budget is an indispensable tool. This budget supplies a firm basis for doing so.
That is why, Madam President, it gives me great pleasure to present to you the 2017 Budget Memorandum and the accompanying documents.