The government will spend much more in the coming years than it brings in if nothing changes, says the CPB. The Netherlands will thus exceed new European budget rules. Should we fear punishment? Economists call for discipline.
The Netherlands will face large budget deficits in 2026, 2028 and the following years. If policy remains unchanged, the government will spend significantly more in those years than it brings in, the Central Planning Bureau (CPB) predicted this week. This year and next year the budget deficits will remain relatively limited, but after that the Netherlands will violate European rules.
These rules stipulate that a country’s budget deficit may not exceed 3 percent of gross domestic product (GDP). GDP is everything that citizens and companies earn in a year.
According to the CPB, we will exceed this several times from 2026. Is that bad? “That depends on why you are crossing borders,” says Rabobank chief economist Ester Barendregt. “Is this due to higher investments that will pay for themselves later or are we structurally spending too much?”
But she emphasizes that it is a bad signal if the Netherlands does not adhere to the budget rules. “We always insist that other countries must comply with this, and do so for a reason. Europe’s financial stability depends on it. It is painful if the Netherlands in particular does not comply.”
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Less room for extra expenses
The Netherlands is still in good shape. This is partly because the national debt is only 46 percent of GDP. The member states of the European Union have agreed on 60 percent as a maximum. Many countries still have much higher national debt.
“That offers some peace of mind, but the predicted budget deficits are still difficult. The room for a new coalition to make additional expenditures is very limited,” says Barendregt.
Earlier this month, member states agreed on new budget rules. The limits for deficits and government debt remain the same. But what you should do if you don’t adhere to this is different.
Previously, there were fines and countries were required to limit their national debt by one-twentieth every year. That would lead to extra painful cuts. In the end, the soup was often not eaten as hot as it was served and fines were not issued.
Create a recovery plan if you color outside the lines
The new rules require more patience and customization. Mandatory limitation of national debt must be done in much smaller steps. And member states that color outside the lines must submit a recovery plan. They then ask other member states for approval on how they want to recover within four to seven years.
The new budget rules are an improvement, says Barendregt. “There was a lot of room to postpone European interventions. There is also a lot of flexibility now, but Europe can start to hold countries more strictly to the rules. Because you can come up with your own recovery plans, there are also fewer excuses not to do so.” to maintain.”
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How strict is Brussels now?
How soon we can expect an intervention from Brussels remains to be seen. Hein Roelfsema, economist at Utrecht University, thinks it is not too bad. “Then it will probably be necessary to intervene in almost all member states. And our national debt is much lower than that of some other member states.”
He does think that Europe will not turn a blind eye to our deficits. “We already know that if policy remains unchanged, deficits will increase significantly due to poor economic prospects. So we would knowingly exceed limits. These high deficits certainly did not happen to us due to setbacks.”
To gain more understanding of the major shortages, the Netherlands must demonstrate in Brussels that it is also making major investments in the future, says Barendregt. “There will be more understanding if high deficits arise due to substantial investments in innovation, sustainability or defense. These contribute to the future-proofing of our economy,” says the Rabobank chief economist.
The Netherlands itself also has an interest in lower deficits
The economists believe that, regardless of how strict Brussels intervenes, there are enough reasons to start coloring within the lines again.
“We have built up a good reputation over all these years,” says Barendregt. “Predictable budget policy also benefits us. Financial markets easily lend us money. Furthermore, responsible budget policy also ensures that the Netherlands has a buffer in the event of calamities. We have also noticed this in recent years with corona and the energy crisis.”
Roelfsema points out that the Netherlands has always liked to set a good example. “If we do not comply with it, it will send a signal to other countries. They will also point to the Netherlands if they are challenged about their financial policy.”
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2024-02-25 06:02:14
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