The Netherlands’ Energy Support: Spending Below EU Average

In terms of energy support, the Netherlands was not as generous as other EU member states. The amount that the government spent to compensate citizens for the rise in energy prices is below the EU average. Economists from the Ministry of Finance write this in an economist magazine on Tuesday ESB.

Last March, after Russia’s invasion of Ukraine, energy prices – which had been rising for some time – rose even more sharply. The Dutch cabinet has earmarked 23.5 billion euros for measures to mitigate the effects. At the end of last year, all energy consumers in the Netherlands received 190 euros from the state. Since this year, the government has been compensating citizens and businesses with a price ceiling. In many countries, the aid that was ultimately realized was lower than the aid announced, partly because energy prices fell sharply at the end of last year. In the Netherlands, the costs for the price cap may therefore amount to approximately 5 billion euros.

Economists Pierre Lievers and Jasper Schalkwijk calculated what percentage of gross domestic product (GDP) was spent on last year’s and this year’s ultimately implemented support measures. They distinguish between targeted support (only for the lowest incomes) and generic support, to every energy user, including users who can still pay the bill despite increased costs.

The Netherlands spent a total of 2.1 percent of GDP. One third of the Dutch support was only for the lowest incomes – about the same as the European average. Spain spent slightly more on total aid: 2.3 percent. Germany and France were closer to the average of 2.8 percent with 3.2 and 2.9 percent of GDP respectively. Poland, the economists calculated, spent relatively the largest amount on energy support at 4.5 percent of national income.

Not without risk

Support measures for rising energy prices are not without risk, according to economists. Governments could use this to fuel inflation. In particular, the support that also reaches high incomes contributes to a further rise in prices, according to economists. Consumers can continue to spend more money through support measures, so that the economy does not cool down further. And that is precisely what is needed to contain the high inflation that countries are struggling with.

Greece spent relatively the most money (5.1 percent of GDP) that also ended up in the pockets of high incomes. In total, the country spent 5.7 percent of GDP on energy aid. The Greek government partly financed this by levying a relatively high ‘excess tax’ on energy companies. This is a tax on ‘excessive’ profits that some energy companies would have made as a result of the increased prices. For Greece, this amounted to 3 percent of GDP. European member states levied much less capital gains tax on average at 0.4 percent of their GDP. The same percentage applies to the Netherlands. In Greece, therefore, a significantly higher share of energy support costs was recovered from the companies concerned than in the rest of the EU.

Southern European member states, which have limited budgetary room because of their sometimes high government debts, spent more on energy support than expected. At the height of the crisis, Lievers and Schalkwijk write, it was feared that these countries would be less able to compensate citizens and companies for the increased energy costs. This would have a ‘distorting effect’ on the level playing field for companies in the European single market. Companies in countries that offer less energy support would then fall unfairly behind compared to companies in countries that pay more support. The calculations of the two economists now show that these southern member states have supported citizens and companies to a similar extent as the rest of the EU.

According to Lievers and Schalkwijk, the feared effect of the inequality between Member States does not seem to have materialised. In the end, for example, Germany, which caused unrest with a support package of 200 billion euros (for last year, this year and next year), appears to offer less support to citizens with the current measures and energy prices than Italy and Poland, among others. According to the researchers, a possible explanation for the differences in expenditure is that the effects of the energy crisis vary from country to country. For example, in countries that traditionally work with variable energy contracts, price increases were felt more quickly and governments felt the need to provide support quickly.

Newsletter NRC Economy

Get a personal selection of the day’s economic news from one of our editors every working day at noon.

A version of this article also appeared in the August 16, 2023 newspaper.
2023-08-15 19:13:02
#Netherlands #spent #energy #support