More cuts, tax increases inevitable, budget deficit to hit 3.4% next year

Unemployment will continue to rise and the Dutch budget deficit will hit 3.4% next year, above the crucial eurozone 3% limit, the government’s macro-economic forecasting agency CPB said on Thursday.

This means the government will be forced to find several billion euros to cut the deficit to agreed limits, commentators said after the figures were published.

The CPB’s deficit figure, which is a preliminary forecast, is slightly more optimistic than the 3.6% figure published a few days ago by the European Commission.

2013

This year the deficit will hit 3.3%, the CPB said. The VVD and Labour coalition had agreed they would not make any further cuts in 2013 but by 2014 the budget deficit must be back below the eurozone limit.

This means a new package of measures will be necessary. Options on the table include tax increases and further public sector wage freezes.

Finance minister Jeroen Dijsselbloem has already been approaching other party leaders in an effort to win broad support for new measures. The government needs other parties in addition to the ruling VVD and PvdA in order to get legislation through the upper house of parliament.

Housing

VVD parliamentary party leader Halbe Zijlstra told RTL news the cabinet will go public with its proposals for new cuts on Friday. These will then form the basis for negotiations with other parties as well as unions and employers.

‘We have to combat a crisis together and that includes the opposition parties taking responsibility,’ Zijlstra said.

The government must be able to present its proposals to cut the budget deficit to Brussels by May 1.

Good news

The CPB also says the Dutch economy will contract by 0.5% this year but grow again by 1% in 2014, driven by exports. Spending power, which has gone down by an average 1.5% this year, will also go up in 2014, the agency said.

Labour leader Diederik Samsom said the figures show ‘there is light at the end of the tunnel’ if all the parties, unions and employers succeed in working together to solve the unemployment problem.

However, RTL commentator Mathijs Bouwman warned that spending power and economic growth are notoriously tricky to predict. He also pointed out that the unstable Dutch political situation leads to quick fixes and short-term measures.


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