Zalm: more economic reforms needed

21st September 2004, Comments 0 comments

21 September 2004 , AMSTERDAM — Unveiling the 2005 Budget on Tuesday, Finance Minister Gerrit Zalm began by asking if the Dutch government was on course with its reform agenda. He answered himself by admitting there was much more to be done because the nation's economic problems had only worsened in recent times.

21 September 2004

AMSTERDAM — Unveiling the 2005 Budget on Tuesday, Finance Minister Gerrit Zalm began by asking if the Dutch government  was on course with its reform agenda. He answered himself by admitting there was much more to be done because the nation's economic problems had only worsened in recent times.

The Liberal VVD minister said that this reinforced the necessity of pushing through further reforms. With much of the budget already leaked last week, Zalm confirmed on Tuesday his intention to prevent the current economic "flu" from becoming a "chronic" illness.

Dutch economic position

Despite this need for reforms, the economy is expected to pick up next year and Zalm believes the worst is over. After the economy shrank by 0.9 percent last year, 1.25 percent in growth is expected this year and 1.5 percent in 2005.

The budget deficit hit 3.2 percent of Gross Domestic Product (GDP) last year, breaching the 3 percent limit imposed by the European Union's Stability and Growth Pact underpinning the strength of the euro.

Zalm said the Cabinet believes that a budget deficit of that magnitude is unacceptable in the long-term, Dutch public news service NOS reported.

Addressing Parliament after Queen Beatrix gave her Speech from the Throne in the Knights Hall, Zalm said the government has opted to save an extra EUR 2.5 billion next year.

The government will cut EUR 1.4 billion from the budget and increase tax revenue by EUR 1.1 billion. The budget deficit will decline from 3 percent of GDP this year to 2.6 percent in 2005.

Zalm fiercely rejected calls to raise government spending, claiming this would only worsen the budget deficit. He said "artificial boosts" might help the economy in the short term, but will only worsen the problems in the long term.

The Netherlands will only profit from the recovery of the global economy and prevent the present "flu" from developing into a "chronic" economic illness if it restricts the budget deficit and public debt.

And as protests against the cabinet's socio-economic policies were waged across the country, Zalm said the government hopes to re-enter talks with employers and unions after unions stage a mass protest in Amsterdam on 2 October. He said the cabinet was not in favour of waging war.

Budget cuts

Zalm said one of the greatest problems of the Dutch economy is that too few people are working and wage costs are too high. The cabinet has thus chosen to restrict WW unemployment benefits and the WAO worker disability scheme with a variety of measures and implement healthcare budget cuts.

A healthcare no claim bonus of EUR 250 will be introduced for people on the public ziekenfonds health insurance scheme. Those who do not go to the doctor, will be repaid the money.

Everyone will incur a loss in purchasing power next year. The cabinet is opting to cut the pc-prive system in which employees could buy a home computer with a tax-free loan from their employer. The computer was to allow the employee to work from home occasionally.

Double income families will be restricted to a single spaarloon saving scheme rather than both partners using the scheme. College fees will rise by EUR 100 and students above the age of 30 will no longer receive government funding.

Furthermore, the government will scrap the fiscally attractive VUT and pre-pension early retirement schemes in 2006 and will aim to achieve zero percent wages rises for 2004 and 2005.

Vulnerable groups

But the cabinet aims to protect the most vulnerable groups in society such as low income earners with children and the elderly on small pensions. These groups will receive several fiscal reductions and the AOW old age pension will be increased.

Strengthening the economy

Another important method to strengthen the economy will be to reduce administrative costs that companies incur in meeting Dutch regulations.

The cabinet is thus committed to reducing these costs by 25 percent or EUR 4 billion. Definite plans already exist to reduce the costs by EUR 3 billion and measures to save the final EUR 1 billion will be drawn up in coming months.

To strengthen the business sector and to make the Netherlands more attractive to foreign companies, the government will reduce company tax from 34.5 percent to 30 percent.

This will be financed by scrapping the grijs kenteken (grey registration plate) scheme. Without the grey registrations, company vans and cars will no longer be exempt from paying BPM, the tax for registering a private car.

Despite doubts expressed by the Lower House of Parliament, Tweede Kamer, the government has remained firm on its previously mentioned plan. It claims the system is too often abused. 

Public safety and security

To address issues of safety and security, large cities will be awarded EUR 120 million up until 2007 to combat repeat offenders and domestic violence. A further EUR 70 million will be used to construct more cells for recidivists.

With the Dutch government confronting rising fears of terrorist attacks, the Dutch intelligence agency AIVD and police will gain an additional 100 personnel to combat terrorism.

[Copyright Expatica News 2004]

Subject: Dutch news

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