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2016 Dutch Budget Memorandum

The Netherlands is back among the leading economies of Europe

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‘Dutch economy better than expected, but not good enough’. The Netherlands is back among the leading economies of Europe. The Dutch economy will grow by 2.0% this year, and 2.4% next year. The deficit is continuing to decrease and unemployment is falling. The recovery is broadly based; this year consumer spending is increasing, as well as exports and investments. In the 2016 Budget Memorandum the government has ensured that as many people as possible can benefit from the recovery, while continuing its reforms aimed at creating more jobs, sustainable growth and healthy public finances. Next year, the government has decided to reduce the tax burden on labour, make purchasing power more equitable, raise spending on health care and defence, and continue to implement the reforms already introduced.

These measures are set out in the 2016 Budget Memorandum, which Minister of Finance Jeroen Dijsselbloem presented to the House of Representatives on Tuesday 15 September. Mr Dijsselbloem believes that, although the projected growth of the Dutch economy gives cause for optimism, unemployment is still too high and is falling too slowly, and there is too little scope for growth. ‘The performance of the Dutch economy is better than expected, but not good enough,’ he said.

The minister explained that in recent years the government had taken many vital measures to put public finances in order, preserve the welfare state and strengthen the economy. As a result, the outlook for the Netherlands has greatly improved. ‘However, those affected by the measures have had to make many sacrifices,’ he said. ‘As the economy is picking up, the government wants the public to feel the effects. We also want to create buffers so that we can deal with any shocks during more difficult times in the future.’

The 2016 Budget Memorandum sets out the following measures:

  • Taxes on labour will be cut by €5 billion. This will generate higher economic growth and 35,000 extra jobs on a structural basis.
  • The rates in the second and third tax bands will be lowered, while the employed person’s tax credit will rise sharply. Employees will therefore retain more of their gross salary.
  • Employers will be given an incentive to hire people at the lower end of the labour market.
  • The government will make it easier to combine work with caring for young children by increasing the income-related combination tax credit and childcare benefit.
  • The government has managed to restore the purchasing power of pensioners and people on benefit. This means that over 80% of households will be better off next year.
  • Up to €345 million will be spent on strengthening the armed forces in the coming years. In addition, €60 million will be earmarked structurally for international missions.
  • In the care sector, structural spending will be raised by €210 million in the coming years, to improve the quality of life in nursing institutions.
  • A structural sum of €60 million will be spent on pre-school childcare.
  • From 2017, paternity leave will be increased from two to five days. The government will provide €75 million for this purpose on a structural basis.
  • The government is also reforming wealth tax, so that the amount taxed is closer to the yield that taxpayers actually earn on their savings and investments.
  • This year the government has earmarked €470 million for a public sector pay agreement. The amount will rise to €1.3 billion per year.
  • To deal with the influx of asylum seekers, an extra €539 million will be made available for their reception in the Netherlands in 2015. To offer refugees protection in the first safe country they enter after fleeing their homes, the government has set aside €110 million for reception in the region.

Budget deficit falls, structural deficit rises

The economic recovery is having a positive effect on public finances. The budget deficit will fall to 1.5% of gross domestic product (GDP) in 2016. This is caused by the economic upturn (resulting in rising tax revenues and lower spending on unemployment benefit) and by the government’s earlier reforms and savings. The structural deficit will increase to 1.3% of GDP in 2016, mainly as a result of the lower natural gas revenues and tax cuts. This increase is not significant and falls within the margins allowed by the preventive arm of the EU’s fiscal rules. The EMU debt (general government consolidated gross debt) is projected to fall to 66.2% of GDP (€466 billion) in 2016.

Source: Government of the Netherlands

15 September 2015

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