The 40 billion that Jetten & Co. are passing on to their successors

The new coalition parties are pretending to keep a close eye on the treasury. But they are already increasing spending for their successors by €40 billion, without finding any way to cover it. That and six other notable issues.

Disclaimer: This article was written on the day the coalition agreement was presented. The financial breakdown accompanying the agreement was more difficult to decipher this time around than in previous coalition formations. As a result, Hollands Welvaren had to estimate some of the figures itself, and errors may have crept into the interpretation. Furthermore, some of the allocations are open to debate: is a higher out-of-pocket contribution for healthcare a cost-cutting measure, or an increased financial burden? If you find any errors, please let us know!

1) Let's start at the beginning: How well does this administration fit the budget?

Jetten’s incoming cabinet plans to spend a little more one year and a little less the next, without any major spikes. Note: this is relative to the so-called baseline scenario, in which government spending is already set to grow automatically. By 2030, the budget deficit will be reduced by 2.3 billion compared to what it would have been if Jetten & Co. had sat on their hands and done nothing. That amounts to about 0.2% of the total economy (GDP). If you compare that to the previous five cabinets, Jetten ranks as average. Not as wasteful as Schoof and Rutte in his final years, but also not as decisive as the young Rutte.

2) That's fine, isn't it?

Well, no. In the long term (“structurally”), the government isn’t cutting spending at all, on balance. Yet last year, an influential group of civil servants had said that 7 billion euros would have to be cut (or taxes raised) to cover the costs of an aging population. And that civil service recommendation was already very lenient.

Read the previous story here: Where Have All the Strict Math Teachers Gone?

This makes it all the more striking that the parties do state in the coalition agreement that they intend to follow the civil servants’ recommendations. That would mean a budget deficit of no more than 2%, whereas the Netherlands Bureau for Economic Policy Analysis (CPB), in its analysis of the election platforms, had still projected a deficit of 2.5% at the end of the next cabinet’s term. So the big question is: will Finance Minister Eelco Heinen be guided by the coalition agreement (2%) or by the financial agreements that have been made (2.5%)?

3) Does this also mean that there will be little change in tax rates?

The financial appendix to the coalition agreement normally distinguishes between spending cuts and investments, and between tax increases and tax cuts. This was not done this time, which makes comparisons difficult. A quick calculation from Hollands Welvaren shows a net increase of 13.8 billion euros in government spending over the next four years, primarily in defense (9 billion). That is the sum of 17.1 billion in increased spending and 3.4 billion in spending cuts.

These expenditures are primarily covered by passing the bill on to citizens and businesses: 13.8 billion. Because the appendix to the coalition agreement is unclear, this is not simply the sum of tax increases, but of all the measures that will be borne by citizens. The “freedom contribution” for Defense is the largest item. But there are also numerous increases in out-of-pocket costs for health care and cuts to social security benefits.

In some cases, strictly speaking, these measures will fall under the term “austerity” rather than “tax increase,” but when you add them all up, one thing becomes clear: the burden falls on the public, not the government. The graph below may therefore differ from the cost analysis of this agreement that the Netherlands Bureau for Economic Policy Analysis (CPB) will soon present.

In this respect, the incoming cabinet does indeed differ significantly from its predecessors. They raised taxes to a much lesser extent—for example, by implementing spending cuts. Rutte 3 was even able to promise substantial tax cuts because the economy was doing very well at the time.

That looks like it's going to be a piece of cake for the opposition.

4) But don't center-right parties generally oppose tax increases?