Dutch budget is just words; real cuts to come: analysts

19th September 2010, Comments 0 comments

A cost-cutting Dutch budget expected on Tuesday is merely a ritual prologue to probably much tougher cuts by another government, analysts say.

The cuts in themselves will be worthless, but set a baseline for the real budget which will be the priority for an incoming coalition administration.

But cuts there will be in the end, probably with some tax rises, to fight overspending even as the economy shows signs of slowing.

On this score, the Netherlands is in a similar, although lesser dilemma to the one squeezing many governments in the European Union, from historic and radical reforms in Greece to radical action in Britain and Spain against a background of anxiety that if they get the mix wrong, and all together, they could tip everyone in the boat back into recession..

What makes the Netherlands different, apart from underlying performance which is relatively favourable compared to the EU countries in most difficulty, is that the government, required by law to present a budget on Tuesday, is waiting to hand the keys to a new coalition administration in the process of being formed.

With a new coalition government yet to be formed and the direction of economic policy uncertain, outgoing finance minister Jan Kees de Jager will have no room for grand plans to boost the post-crisis economy.

"The budget will count for nothing," University of Amsterdam economist Bas Jacobs told AFP ahead of the event that is required by law to happen every third Tuesday of September, even in times of political transition.

"Whatever will be presented on Tuesday can be thrown in the trash: the new government will completely modify the budget" as it tackles a public deficit expected to rise to 6.3 percent of GDP in 2010 from 5.3 percent in 2009.

Negotiations to form a new coalition government are still underway after the collapse of the centre-left government led by Christian Democrat Jan Peter Balkenende prompted early elections on June 9.

Balkenende's caretaker government remains in charge of "running issues" including the annual budget, but steers clear of potentially controversial policy issues.

"Until there is a new government, no new projects can be developed," said political analyst Philip van Praag.

MPs, dismissing the exercise as "useless", have decided to skip this year's parliamentary debate with the finance minister that traditionally follows the budget tabling, a parliament spokeswoman said.

This will be the fifth time since World War II that a caretaker government is in charge of presenting the budget.

Dutch newspapers, citing leaked budget documents, report that De Jager will propose cutting 4,000 civil servants' jobs and slash spending on integration courses for immigrants as well as raising tobacco tax as part of a plan to achieve annual savings of 3.2 billion euros (4.2 billion dollars) by 2015.

"This is nothing compared to the huge savings" promised by many political parties' election manifestos to slash a budget deficit in the region of 30 billion euros, said University of Amsterdam political analyst Andrew Krouwel.

The new government will also have to address concerns raised by reported projections of the Central Planning Bureau, whose statistics the government use in budget planning, that economic growth will slow to 1.5 percent next year from 1.75 percent projected for 2010.

The pro-business, centre-right VVD party of Mark Rutte, which scored a narrow election victory with 31 seats out of 150 in the Dutch parliament, campaigned on a platform of cutting public spending by a yearly amount starting at five billion euros in 2011 and reaching 20 billion euros in 2015.

The party is negotiating the formation of a "minority" coalition with the Christian Democratic CDA that agrees on raising the retirement age by two years to 67 to boost fiscal stability.

Such a coalition will operate with the parliamentary support of anti-Islam MP Geert Wilders' Party for Freedom, which opposes steep spending cuts.

Attempts to negotiate a centre-left coalition led by the VVD and the labour PvdA, faltered in July on fundamental economic policy differences.

© 2010 AFP

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