Universiteit Leiden

nl en

This will be in the Budget Memorandum (we think)

Each year, the Dutch government publishes its Budget Memorandum on Budget Day, or Prince’s Day as it is known. The economy is doing well, and elections will be held at the start of 2021, so it’s most likely that many a rose-tinted plan will emerge from the briefcase on Prince’s Day on 17 September. Economist and public administration expert Wimar Bolhuis offers his prediction.

Campaign fund

‘I expect the budget to be a veritable campaign fund. With elections to the House of Representatives to be held in March 2021, the coalition parties will want to spend the next year and a half campaigning. This will mean ensuring that the economic growth is felt by the entire population. And they now have the opportunity to do so. The year 2020 is likely to be the fifth year in a row that the Netherlands has no budget deficit – the last time that happened was in 1954. It also has the lowest interest payments since 1814. If you wanted, you could reduce tax by around three to five billion euros. With the negative interest rate for the Dutch government, there is even talk of a 50 billion investment fund, probably for investment in research, infrastructure and other things that will represent a clear return.’

Generation test

‘Over the last few years, it has become clear that young people have been hit by government policy in the crisis years from 2008. Student grants have been replaced by a loan system, and it is difficult for starters to buy a house. More and more measures from the crisis period are now being questioned. The loan system is under attack, and the Cabinet recently announced it would be providing a billion euros for a house building fund. The Social and Economic Council (SER) recently concluded that for too long, politicians have taken too little consideration of the effect of the combination of various laws on young people. They believe that a “generation test” would stop this happening again.’

The self-employed

‘There are two groups for whom the plans and state of the economy may be less advantageous. First the self-employed. As of next year, the self-employed persons’ allowance will be gradually reduced. This is extremely sensitive. For the governing parties, the self-employed are a growing group of voters, and they are getting better at organising. They have often been through higher education and have years of work experience and their own network. All in all, the impact of this measure won’t be that drastic because the loss of income will be compensated for by an improving economy and the general reduction in income tax. Second, pensioners are under pressure. The interest rate is very low, so the question is whether the pension funds will be able to continue at the current level of pensions for much longer. Pensions may have to be reduced. The Cabinet is now deliberating on how to avoid cuts in the coming year. I also expect an announcement about this on Prince’s Day.’

Trade war

‘The real threat mainly comes from over the border. A trade war is raging between the United States and China, and there is uncertainty about Brexit, and, for the first time in ages, Germany is in a recession. That is dangerous for the Netherlands because exports count for 30% of our gross domestic product. For a trading nation such as the Netherlands, the question is: what will the government do if we enter a recession? International institutions have already commented that the Netherlands should pursue a counter-cyclical policy, in which spending policy negatively correlates with the state of the economy. This means that you have to be frugal in a boom period and spend money during a recession. The question is whether this will actually happen because the Netherlands usually pursues an extremely pro-cyclical budget policy. At the same time, it can be that a cash-splashing “campaign budget” and an economic downturn coincide next year and that we accidentally end up pursuing a counter-cyclical policy.’

Come to the Prince’s Day symposium

Wimar Bolhuis and other researchers from Leiden will be speaking at a Prince’s Day symposium in The Hague on 17 September. Hear all about the King’s Speech, traditions and Budget Memorandum. Entrance is free, even if you don’t work or study at Leiden University. More information

 

This website uses cookies. Read more