Netherlands aims to slash public spending by 20 pct

16th September 2009, Comments 0 comments

Cuts in various sectors such as defence, development aid and workforce integration are being proposed by the government.

The Hague – The Netherlands said Tuesday it would seek to cut public spending by up to a fifth to tackle a mounting budget deficit as the credit crisis sent the economy's vital statistics plunging from 2009.

Different sectors of government would have to find ways to achieve a 20 percent saving on spending with effect from 2011, according to 2010 budget documents tabled by Finance Minister Wouter Bos, who warned of "difficult choices and painful results”.

"It will be hard," the minister told parliament as he stressed that the costs incurred by the government to shield the country from the economic crisis had to be paid back.

"It is unavoidable that we have to ask a contribution from everyone.

"The truth is that the Netherlands after the crisis is poorer than before the crisis."

Queen: Everyone should help
Queen Beatrix said in her annual address from the throne, scripted by the government and held to coincide with the tabling of the budget, that declining prosperity and a mounting national debt would make it harder to meet social costs.

"If policy remains unchanged, there will be serious and undesirable consequences for the level of taxes and social insurance contributions, employment, and affordability of pensions and services such as healthcare and education," she said.

While the government found ways to save money, the private sector should also "avoid inappropriate pay rises.

"If this does not happen, the government will have to take further measures," the Queen warned.

Bad news for Dutch economy
Just 12 months ago, Bos pronounced the economy healthy in his 2009 budget and predicted three years of surpluses. Since then, the government has injected EUR 80 billion into banks and insurance companies to get them through the global credit crunch.

Tax income was hard hit by a dive in exports and oil and gas sales, while expenditure on unemployment insurance rose.

Bos' new budget projected a deficit of EUR 36.5 billion, equal to 6.3 percent of gross domestic product (GDP) for 2010, following on 4.8 percent for 2009.

Total public debt was projected to reach EUR 381 billion, equal to 65.7 percent of GDP – some EUR 50 billion of that as a direct result of government assistance to the financial sector.

Even if the economy recovered and growth returned to two percent per year, debt would continue mounting at a rate of more than EUR 30 billion annually.

"The budget shortages of 2009 and 2010 are responsible for increasing the public debt with nearly EUR 70 billion," a statement said.

Economic growth was projected at zero percent for 2010, following a contraction of 4.8 percent for 2009, while unemployment would double to 8 percent.

"This means that more than 600,000 people will have no jobs," the statement said.

Inflation is set at 1 percent in 2010 while the Dutch’s spending power will decrease by 0.25 percent the next year.

A total of EUR 4.2 billion was budgeted for economic stimulus measures in 2010, including EUR 900 million for combating unemployment.

Plans for 2010
The government recommends cuts in areas such as defence, development aid and workforce integration. States pensions for partners under 55 will be scrapped while child benefit and students grants are frozen.

Instead the government will spend EUR 1 billion extra on benefits for unemployed part-time workers and EUR 416 million to boost youth unemployment.

Other new measures proposed by the government include raising the pension age, accelerating the new roads project and increasing flexible hours.

There will be no changes to income tax rates, mortgage tax relief and value-added tax although basic health insurance premiums will rise by EUR 20 a year. Own risk payments are set to increase slightly from EUR 150 to EUR 165.

The Queen said the Netherlands faced "an exceptional but by no means impossible task," warning that the consequences of the crisis would be felt for a long time to come.

"With determination and a willingness to change we can use the opportunities that present themselves to strengthen our country economically and socially," she said.

AFP / Expatica

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