We’re in the money: how will political parties spend €27bn?

mathijs boumanAccording to the CPB, it looks like the political parties can actually afford to go on a spending spree, writes Mathijs Bouman. The macro-economic think tank traditionally analyses party manifestos in the run up to the general election.

Every time the CPB analyses election programmes, politicians grumble. But this year their grumble has turned into a wail. Ahead of the national elections in 2017, CDA, Labour and D66 have publicly vented their unwillingness to participate in this uniquely Dutch tradition. SP, GroenLinks and SGP are still thinking about it.

I have to admit I have always been in two minds about the method used by the CPB. In order to prevent parties from being rewarded for squandering money, the CPB looks at the long-term effects of the election programmes. It makes sense as an idea but what actually happens is that, come campaigning time, politicians start pounding each other with figures about job growth in 2040. That, inevitably, leads to nonsensical discussions.

Be precise

On the other hand, the CPB analysis is a great way of infusing some discipline into the writers of the election programmes. Political parties who promise to lower taxes, increase spending while claiming the budget deficit will fall, will feel the cold steel of the CPB dissecting knife.

What is more, they need to be precise. ‘We will reduce health care costs’ is not going to cut it with the CPB. By how much? How? When and who will benefit? The CPB wants to know. If you really want to know what political parties are up to, a CPB analysis will tell you more than an election programme.

That is why I would be sorry if the programmes for 2017 weren’t subjected to the CPB treatment. Fortunately chances are that the parties will change their minds and participate after all. Firstly, because they don’t want their opponents to accuse them of cowardice and secondly, because this time around an analysis could actually work in their favour. There is money in the kitty in the coming years, lots of it.

Something for everyone

At least that is what the CPB’s latest economic forecast tells us. This can be seen as a baseline measurement for the elections: how would the economy fare if policies remain the same? These data matter to election programme writers because it shows how much room there is for extra spending and tax relief.

It turns out there is quite a bit of room. After years of cutbacks and tax increases the budget is looking very healthy. It’s so healthy in fact that the Netherlands will meet all European budget rules in 2021. The budget deficit will become a budget surplus and public debt will go down to under 60% of GDP.

Other requirements, for instance regarding the structural deficit and increases in public spending, are within the boundaries as well. That gives left-wing parties an opportunity to come up with plans to tackle income inequality while right-wing parties can tout tax relief. There’s something for everyone.

How to spend €27bn

So how much can the parties bet on their various hobby horses? It’s not easy to say. It all depends which budget rules you want to continue to meet. I will try anyway. Officially, the structural deficit in 2021 cannot exceed 0.5% of GDP. According to the CPB we will be looking at a 0.1% surplus. The resulting margin is 0.6 % or some €5bn for new policies.

That is something but it gets better. Taking into account the maximum allowed collective spending increase of 0.9% a year, the government can spend as much as an extra €24bn in 2021. The deficit will go up but will stay under the 3% limit. To reach that limit spending can go up to €27bn. That would worry Brussels a little but not enough to dole out a fine.

The sweet shop is open for business. The billions are there for the spending. What politician is going to resist? The analysts at the CPB are rolling up their sleeves as we speak.

This column was published earlier in the Financieele Dagblad