- The Exchange Rate Issue - April 15, 2018
- How hot can we get? We are in Europe after all, right? - March 27, 2018
- Fish in Troubled Waters - January 21, 2018
- The Dutch Coalition Agreement, Concisely - November 14, 2017
- This Old Guitar Gently Weeps - October 8, 2017
The 2017 Dutch election has come and gone and with it a newly assembled coalition of parties has been formed, destined to reign over the Netherlands for the coming four years. A new government must have a ‘new’ prime minister, one who has held the office since 2010. With the inauguration of the new government, a new government budget is drafted, due to be implemented over the course of their 4-year term. The coalition is a fusion of multiple parties; this time consisting of four parties:
- The VVD, the liberal party, led by prime minister Mark Rutte
- D66, the progressive liberal party, led by Alexander Pechtold
- The CDA, The Christian Democrats, led by Sybrand Buma
- The CU, The Christian Union, led by Gert-Jan Seegers
The drafted government budget is economically different from its predecessors, in the sense that it is more economically liberal than the previous two budgets. The most controversial plans are the change from three tax brackets to two and the increase of the low VAT from 6 to 9 percent. The Dutch Bureau for Economic Analysis has estimated that the budget changes will have a small median benefit on the purchasing power for everyone, however, this does not include the effect of the raised VAT (CPB, 2017). It does however mean that some citizens will experience a decrease in purchasing power, due to the government plans. Especially the social benefit recipients will see a decrease in purchasing power. 13 percent of social benefit recipients earning 12,000-16,000 euro is expected to see a decrease in purchasing power due to the budget changes (Volkskrant, 2017). The raised VAT is not included in this purchasing power decrease.
Gross Domestic product is steadily growing at approximately 3 percent, total consumption is rising with approximately 2 percent and export is soaring with an unexpected, 7-percent rise in exports during the 3rd quarter of 2017 (CBS, 2017). With an economic prospect so universally positive, should the government not focus on helping the more unfortunate recover from the recession? Jesse Klaver, the political leader of the Dutch environmentally-friendly socialist party called ‘Groenlinks’, argues that this government budget is detrimental to income equality (Klaver, 2017). He argues that the increase in VAT together with the removal of dividend tax will increase income equality permanently. However, the CPB’s predictions contradict that. In the short run the government budget may indeed lead to an increase in income inequality, however in the long run the income equality is expected to remain at approximately the same level that it is now(CPB, 2017). Mark Rutte claims that ‘all normal, ordinary citizens will benefit’ from this coalition agreement (RTL, 2017). This claim is partially reinforced by the CPB’s data, indeed, overall there is a slight increase in purchasing power; however, not every ‘normal, ordinary citizen’ will benefit.
In a similar vein, the coalition partners have also tried their best to assure their electorate, that the interests of their party are represented in the government budget. The coalition partners have collectively argued that the removal of dividend taxes, the increased redundancy flexibility and lower corporate profit taxes will increase investment and create jobs. The coalition also expects that the removal of dividend tax will entice British companies to relocate their headquarters to the Netherlands after the impending Brexit. However, the CPB predicts that the Coalition agreement will increase structural employment by an extraordinary 0.2 percent (CPB, 2017). This translates to roughly 14,000 extra jobs in the long run, on a labour force of approximately 13 million.
Overall, the general economic forecast is one of economic growth. The budget drafted does not do much to increase this projected economic growth, nor does it use the economic growth to patch the holes that the Great Recession of 2008-2012 left us. This government seems to be focused on stabilisation of the economy and government finances and encouraging large-scale entrepreneurship. Whether that will prove to be a correct judgement of the current economic situation remains to be seen.
CBS. (2017, November 14). Bbp, productie en bestedingen; kwartalen, mutaties, nationale rekeningen. Retrieved from statline.cbs.nl: http://statline.cbs.nl/statweb/publication/?dm=slnl&pa=82602ned
CPB. (2017). Analysis economic and Budgetary Effect of the financial appendix of the Coalition Agreement. The Hague: CPB.
Klaver, J. (2017, October 10). Regeerakkoord maakt kloof tussen arm en rijk groter. Retrieved from groenlinks.nl: https://groenlinks.nl/nieuws/regeerakkoord-maakt-kloof-tussen-arm-en-rijk-groter
RTL. (2017, October 10). Rutte presenteert regeerakkoord: ‘Normale, gewone burgers gaan erop vooruit’. Retrieved from rtlnieuws.nl: https://www.rtlnieuws.nl/nederland/politiek/rutte-presenteert-regeerakkoord-normale-gewone-burgers-gaan-erop-vooruit
Volkskrant. (2017). Wat betekent die koopkrachtprognose nú echt voor u? Retrieved from volkskrant.nl: https://www.volkskrant.nl/kijkverder/2017/koopkracht/