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Contents



Page

Chapter 1	Overall policy framework and objectives	3

Chapter 2	Economic outlook	6

Chapter 3	General government balances and debt	16

Chapter 4	Sensitivity analysis and comparison with previous update	20

Chapter 5	Quality of public finances	26

Chapter 6	Sustainability of public finances	32

Chapter 7	Institutional features of public finances	35

Annex	Tables	39



Chapter 1 	Overall policy framework and objectives

At the moment, the internationally oriented Dutch economy is
experiencing a slowdown, induced by a severely deteriorating world
economic outlook. This is mainly the result of the international
financial crisis, which, in particular, will induce a declining growth
in exports. As a clarification, it must be noted explicitly that in this
update of the Stability Programme the starting points for the
quantitative analysis are the most recent short and medium-term outlook
as provided by the CPB Netherlands Bureau for Economic Policy Analysis
and the Cabinet’s “Budget Memorandum 2009”, dating from September
2008. These projections were performed before the financial turmoil hit
Europe. The sensitivity analysis performed in Chapter 4 will therefore
be given greater attention than usual. Also, the recent interventions in
the financial market by the Dutch government had not yet taken place and
are therefore not reflected in the numbers. This is especially relevant
for the debt ratio, as the interventions immediately impact this
variable (as opposed to the budget balance). Qualitative information
will be presented in boxes to account for the performed interventions. 

On the 22nd of February 2007 a new Cabinet came into office in the
Netherlands. It marked out economic growth, sustainability and
solidarity as the key concepts in its Coalition Agreement for the period
up to 2011 and identified six priority areas for public policy: (1) an
active and constructive role for the Netherlands in Europe and in the
world, (2) progress towards an innovative, competitive and enterprising
economy, (3) a sustainable living environment, (4) participation and
social cohesion, (5) safety, stability, and respect, (6) a more
service-oriented and more efficient government. Measures taken within
these priority areas, both on the expenditure and revenue side, aim to
strengthen both the economic and social structure of the Netherlands as
well as to strengthen the soundness of public finances. The budgetary
framework sets a strict budgetary constraint on new policy measures
through its aim for a 1% structural surplus target for 2011. Now, more
than a year further, we can establish that the Cabinet is well on track
to achieve its stated ambitions. In particular, some structural reforms
have been carried out, mainly with regards to the sustainability of
public finances through a set of measures aimed at increasing labour
participation. Also the 1% structural surplus target for 2011 is
achievable, as in 2009 a structural surplus of 1.1% is expected. 

On the basis of the latest forecasts, the Dutch economy in 2008 was
still expected to grow above its potential growth rate of 2%, namely by
2.25%. In addition, public finances were expected to be steadily
improving. In 2008 the budget balance surplus was expected to ameliorate
from 0.3% in 2007 to 1.2% in 2008 and the debt ratio to be reduced by
2.6 percentage points to 42.1%. Moreover, the structural balance was
expected to reach a surplus of 0.9% in 2008. The projected path for the
structural balance in the Budget Memorandum 2009 is in line with the
Medium Term Objective (MTO). 

The Cabinet commits to stay within its real expenditure ceilings. Given
the macro-economic outlook as presented above, this is projected to
result in surpluses up to 2011. However, given the current storm in the
financial markets and its uncertain impact on the real economy, the
actual budgetary outcomes (i.e. deficit and debt ratio) will differ from
the baseline projections provided in this update, with considerable
risks pointing to the downside. The scenario analysis accounts for that.

With respect to fiscal governance, this Cabinet is adhering to the
budgetary institutions that have served previous governments well, but
it has also improved on some elements. Just like during previous
governments, trend-based fiscal policy making, with its medium term
focus, is still key to budgetary policy making. Real expenditure
ceilings have been set for the entire Cabinet term. Revenues are allowed
to fluctuate fully to allow for automatic stabilization of the economy
while limits have been set on the discretionary tax cuts and increases
over the Cabinet’s term in office. All this has not changed. In the
current turmoil of the financial crisis this entails that the Cabinet
refrains from any additional structural consolidation, as long as the
signal value of a 2% of GDP budget deficit is not reached. This promotes
tranquillity, stability and transparency in our budgetary process and
ensures that the Cabinet can fulfil its ambitions. 

Some elements of the Dutch budgetary rules have been improved. For
instance, the signal value, the value at which additional policy action
is taken to avoid the occurrence of excessive deficits is now a
(nominal) deficit of 2% of GDP, whereas it was 2.5% under the previous
government. Furthermore, interest expenditure has been taken out of the
expenditure ceilings to diminish pro-cyclicality. 

Lastly, the Cabinet has introduced a new budgetary methodology with
respect to the treatment of gas revenues (for more information regarding
how gas revenues are treated in the national accounts, see the box in
chapter 3). Favourable natural gas revenues are immediately reflected in
the budget balance, since the government maintains fixed input for the
FES (fund for structural reinforcement of the economy). This entails
that extra gas revenues do not translate into additional expenditures.
At the same time, if actual gas revenues are less than expected a priori
due to a decreasing oil price, the budget balance will be negatively
affected. In addition, the Cabinet has developed a new system regarding
the funding of the FES, starting from 2012. 

The essence of this new system is that funding for the FES will be based
on a share of the return of the total value of natural gas resources.
The new system ensures that (a share of) the remaining natural gas
resources will be converted into a structural and stable series of FES
funding, meaning that FES funding will continue even after gas resources
are completely dried up. This way, also future generations will be able
to enjoy the benefits of gas resources. Each new Cabinet will decide
which share of the interest that becomes available will be reserved as
input for FES funding. The input will then be fixed for the whole
Cabinet’s term of office. As stated above, mutations in gas revenues
during the Cabinet term of office will therefore not affect FES funding.
This eliminates the risk of overly hasty decision making in the case of
revenue windfalls and that of a cut in funding for initiated projects in
the case of revenue falls. In reaction to a study by the Dutch Central
Bank, the Cabinet will also look into alternative means for retention of
wealth stemming from national gas resources other than the by this
Cabinet preferred option as reflected in the new system of FES funding.

This update is based on the Coalition Agreement, the 2009 budget and the
CPB Netherlands Bureau for Economic Policy Analysis (Centraal
Planbureau/CPB) short and medium-term economic outlook. The budget has
been approved by Parliament. Following the approval of the Stability
Programme by the Dutch Council of Ministers on 28 November 2008, it was
simultaneously sent to Parliament and the European Commission. The
Council opinion on the previous update of the programme was discussed in
Parliament on 1 February 2008.

Chapter 2 Economic outlook

This chapter will present an overview of the current macro economic
situation. As stressed in chapter 1, this baseline scenario is based
upon the most recent short and medium-term outlook as provided by the
CPB Netherlands Bureau for Economic Policy Analysis and the Cabinet’s
“Budget Memorandum 2009”, dating from September 2008. Since these
projections, downside risks have considerably augmented as a result of
developments in relation to the financial crisis. These downside risks
are not yet reflected in the numbers and explain the substantial
differences with the latest projections by the Commission. The
sensitivity analysis in chapter 4 will present alternative scenarios in
order to account for these downside risks in the best possible manner.
These scenarios on top of the baseline scenario are meant to be more in
line with the current economic outlook. 

World economy and technical assumptions

The short-term economic outlook for the world and Europe is clouded, due
to significant downside risks associated with the current developments
on the financial markets and their impact on the real economy. The
overall picture is one of a sharp deterioration compared to last
year’s update. It must be stressed that the projections are provisory
and subject to an extraordinarily degree of uncertainty, as momentarily
conditions can change very rapidly and alter the outlook substantially. 

The external assumptions underlying the Dutch baseline scenario differ
significantly from those of the European Commission. The Dutch economic
forecast and the Commission’s Autumn Forecast are compared at the end
of this chapter. Chapter 4 presents an analysis of some alternative
scenarios showing the sensitivity of the economic scenario to major
assumptions (financial crisis, oil price, exchange rate and a fall in
the stock market). Since the latest projections were finalised well
before the recent intensification of the financial market turmoil, the
scenarios will primarily focus on a “low growth environment” to
account for recent developments. 

The table below shows the external assumptions for the short and
medium-term economic outlook, as applied in the Budget Memorandum 2009.
The period up to 2009 is the short term scenario based on the
independent forecast by the CPB Netherlands Bureau for Economic Policy
Analysis. The assumptions and the forecasts for 2010 and 2011 are also
based on work by the CPB Netherlands Bureau for Economic Policy Analysis
but on reports pertaining to the medium term outlook dating from 2007.

Table 2.1 External assumptions

	2007	2008	2009	2010	2011

Short-term interest rate (annual average)	4.3	5	4 ¾	4 ½	4 ½

Long-term interest rate

(annual average)	4.3	4 ½	5	4 ½	4 ½

USD/€ exchange rate (annual average)	1.37	1.55	1.57	1.45	1.45

Nominal effective exchange rate 

	3.9	5 ¾	½	1	1

World GDP growth	4.9	3 ¾	3 ½	4 ¾	4 ¾

EU GDP growth 	3.1	1 ¾	1 ½	2 ½	2 ½

World GDP growth excluding EU	5.4	4 ½	4	5 ¼	5 ¼

Growth of relevant foreign markets*	6.3	3 ¼	3 ¾	6 ¼	6 ¼

World  import volumes, excluding EU	9.9	6 ½	6 ¾	6 ½	6 ½

Oil prices (Brent, USD per barrel)	72 ½	118	125	68	65

Source: CPB document 151, figures for world GDP growth, EU GDP growth,
and world GDP growth excluding EU are consistent with this document but
not provided there; Oil prices for 2010 and 2011 are the ministry of
Finance’s own estimates.

* Taken to be equivalent to the Dutch “relevant wereldhandelsvolume”
(volume of relevant world trade)

Cyclical developments and prospects according to the baseline

Supported by all major domestic demand categories (private consumption,
investment and government spending) and exports, economic growth is
expected to reach 2.25% in 2008. In 2009, however, growth will slow down
to 1.25%, according to the Budget Memorandum 2009. Higher inflation
leads to a drop in the growth of domestic expenditure. As a result the
contribution of private consumption and investment to growth will be
fairly minimal. In contrast, government spending remains substantial,
primarily as a result of steady expenses related to the health sector. 

Total private investment is expected to grow by 6.5% in 2008. Due to a
remarkable increase of so-called non-cyclically sensitive investments,
such as airplanes and big energy projects, the growth of business
investment in fixed assets is higher than last year. In contrast, the
slowdown in growth of cyclically sensitive investments is substantial,
from 11.6% last year to 2.5% this year. This development is in line with
falling production growth in the private sector and the diminished
producer confidence. 

	

In 2009 a turnaround is expected. After 4 years of growth, next year
private investment is forecast to contract by 2.75%. Lagging production
growth in the private sector holds on, lowering the need for investments
in extra capacity. Thereby, investments have lower returns as
profitability prospects worsen. Also, it is more difficult to attract
capital as banks lend out less money and do so against higher premiums
in response to the financial crisis. Because of these developments, the
cyclically sensitive investments will decline sharply by 4.75%,
accounting largely for the contraction in total private investment. 

Private consumption growth is forecast at 1.5% this year and 1% in 2009.
The main culprit for this slowdown is a less favourable development of
real disposable family income, mainly as a result of a strong decline in
employment growth. This is augmented by adverse developments in private
wealth in the form of the real value of stocks and houses. For the first
time since 2003 private wealth will negatively affect private
consumption. 

The developments sketched above do not only influence consumption, but
also consumer confidence. Consumer confidence in 2008 has plummeted
compared to 2007. Also the subindicator “willingness to buy”, which
displays the strongest correlation with actual consumption spending,
decreased significantly. Since there is usually a lag of half a year to
a year between consumer confidence and consumer spending, the big
fallback is expected to occur in 2009, as reflected in the forecast. The
biggest decline in consumer spending is expected in consumer durables.

Table 2.2 Macroeconomic prospects

	ESA Code	2007	2007	2008	2009	2010	2011



Level

(bln €)	rate of change	rate of change	rate of change	rate of change
rate of change

Real GDP	B1*g	567.1	3.5	2 ¼	1 ¼	2	2

Nominal GDP 	B1*g	567.1	5	4 ¼	4 ½	3 ¾	3 ¾

Components of real GDP

Private consumption expenditure	P.3	264.3	2.1	1 ½	1	1 ¼	1 ¼

Government consumption expenditure	P.3	142.5	3.0	1 ¼	2	1 ½	1 ½

Gross fixed capital formation	P.51	113.2	4.9	4 ½	-1	2	2

Changes in inventories (∆)	   P.52 +

P.53	- 1.6	-0.2	0.0	0.2	0	0

Exports of goods and services	P.6	424.8	6 ½	3 ¾	2 ¾	5 ¾	5 ¾

Imports of goods and services	P.7	376.1	5.7	3 ¾	2 ½	5 ½	5 ½

Contributions to real GDP growth

Final domestic demand

520.0	2.7	1.9	0.8	1 ¼	1 ¼

Changes in inventories (∆)	P.52+

P.53	-1.6	-0.2	0.1	0.0	0	0

External balance of goods and services	B.11	48.7	1	0.3	½	½	½



Medium-term scenario

The Dutch economy is facing uncertain times. Lack of clarity about the
length and depth of the current crisis has clouded the economic outlook
significantly. The baseline forecasts indicate that economic growth in
2008 will still amount to 2.25%, which is just above potential growth.
Starting from 2009, however, the output gap will turn negative, and is
expected to remain so in the medium-term. Seen from the supply side,
growth in the medium term is mostly supported by total factor
productivity growth (half of potential growth), with capital
contributing 0.7 percentage points and labour contributing 0.4
percentage points.

Table 2.3 Cyclical developments

	ESA Code	2007	2008	2009	2010	2011

Real GDP growth

3.5	2 ¼	1 ¼	2	2

Potential GDP growth

3.5	2 ¼	1 ¼	2	2

Contributions to growth:

2.3	2.4	2.2	2.1	2.0

- Labour

0.6	0.6	0.6	0.4	0.4

- Capital

0.7	0.8	0.7	0.7	0.7

- Total factor productivity

1.0	0.9	0.9	1.0	0.9

Output gap

0.65	0.6	- 0.35	-0.45	-0.45



Sectoral balances

The price competitiveness of Dutch exports will continue to deteriorate
by 1.25% points this year. Labour costs in the Netherlands are
developing unfavourably compared to those of main competitors, notably
Germany. Growth in labour productivity is lower than that of our
competitors, while the wage bill is increasing faster this year due to
prolonged tightness on the labour market. However, price competitiveness
of the tradeable sector is not deteriorating as quickly as might be
expected on the basis of unit labour costs. The upward pressure on
prices is somewhat absorbed through lower profit margins. However it can
be expected that in the current economic conditions the forecasted
upward pressure on prices will diminish. In 2009, for the first time in
four years, the price competitiveness is not expected to deteriorate. 

Despite a further deterioration of price competitiveness in 2008, the
trade balance remains highly positive. Both the private and public
sector are expected to be net lenders in international capital flows
over the next three years. In the government’s case, this ceteris
paribus would entail a reduction of the debt ratio (see chapters 3 and
6). Of course recent interventions in the financial markets have an
upward effect on the Dutch debt position.

Table 2.4 Sectoral balances

% of GDP	ESA Code	2007	2008	2009	2010	2011

Net lending/borrowing vis-à-vis the rest of the world	B.9	9.8	8.5	9.5
7.5	8.0

Of which

- Balance on goods and services

8.6	8.4	8.8	7.5	7.8

- Balance of primary incomes and transfers

2.7	1.7	1.8	1.2	1.3

- Capital account

-1.5	-1.5	-1.0	-1.2	-1.2

Net lending/borrowing of the private sector 

9.2	7.2	8.2	6.8	6.9

Net lending/borrowing of general government 

0.3	1.2	1.2	0.8	1.1

Statistical discrepancy

0.3	0.1	0.1	0.1	0.0



Labour market

Labour market tensions seem to ease somewhat due to the economic
development, but the labour market continues to experience shortages.
Although actual unemployment is still lower than the estimated natural
rate of unemployment of approximately 5.75%, the drop in unemployment
will end within the near future. In 2009, unemployment is expected to
increase slightly from 4% in 2008 to 4.25% in 2009, as employment
increases less than labour participation. Labour supply will continue to
increase as a result of structural developments. Participation by women
in the workforce will continue to increase, as will participation among
older workers in the age category of 55 to 64 years. Growth in
employment is declining as a result of a drop in production growth and
deteriorating profitability. Despite the slight increase, unemployment
in the Netherlands remains low compared to the Eurozone.

Contract wage increases in the baseline scenario are forecast at 3.25%
in 2008 and 3.5% in 2009. Contract wage increases continue due to rising
inflation and continuing labour market shortages. Aside from this
development, the total wage costs will continue to rise in 2008 due to
the 0.5% incidental wage development and the 0.5% increase in
employers’ social security contributions (due primarily to the
increase in income-based health insurance contribution). The year 2009
will see an incidental wage development of 0.75%, but the wage costs in
the market sector will be tempered by a 0.25% reduction in employers’
social security contributions (reduction in unemployment benefit (WW)
premium, drop in income-based health insurance contribution and drop in
absenteeism due to illness). As a result, the wage costs in the market
sector will increase by 4.25% this year and 4% in 2009. The current
economic slowdown will also have implications for the situation on the
labour market. Inflation (HICP) is expected to increase from 2.5% in
2008 to 3.25% in 2009 in the baseline scenario. Inflation is expected to
rise next year due to higher import prices, particularly of raw
materials, higher indirect taxes and a strong increase in unit labour
costs. Responsible wage development is needed. The Cabinet has
contributed to this objective by cutting the WW unemployment insurance
premiums for employees to zero and is currently in dialogue with social
partners to stress the importance of this issue. In the long run,
responsible wage development will provide a positive contribution to
national competitiveness by inhibiting the growth of real labour costs.

Table 2.5 Labour market developments

	ESA Code	2007	2007	2008	2009	2010	2011



level	rate of change	rate of change	rate of change	rate of change	rate
of change

Employment (x thousand persons)

8613	2.5	2	½	½	½

Employment (bln hours worked)

12.0	2.3	1¾	¼	½	½

Unemployment rate 

(% of labour force)

4.5	4.5	4	4 ¼	3	3

Labour productivity (persons)

65.8	1.0	¼	¾	1 ¼	1 ¼

Labour productivity, hours worked

9.8	1.1	½	1	1 ½	1 ½

Compensation of employees	D.1	279.7	3.4	4 ¼	4	4 ¼	4 ¼

Compensation per employee

47.3	3.2	4 ¼	4	3 ½	3 ½



Comparison with Autumn Forecasts       

The budgetary and economic forecasts of the Dutch Cabinet and of the
European Commission show some discrepancies, especially for the years
2009 and 2010. The reason for these differences is twofold. Firstly, as
stressed repeatedly, the forecasts of the Dutch Cabinet were made in
September, before the financial turmoil hit Europe significantly. The
resulting global growth slowdown is therefore not sufficiently taken
into account, resulting in more optimistic forecasts. Secondly, for 2010
the forecasts of the Dutch Cabinet are based on a medium-term outlook,
which dates back to 2007. This causes the discrepancy with the EC
forecasts to be even more pronounced for 2010 as the recent developments
in relation to the financial crisis have exacerbated the downside risks.
In December the CPB Netherlands Bureau for Economic Policy Analysis will
present its new forecasts.

 Aside from these differences, both the EC and the Dutch Cabinet
forecast a moderation of economic growth in 2009. The table below
compares the two forecasts.

Table 2.6 Comparison with Autumn Forecasts 

Variable	Source	2007	2008	2009	2010	2011

Economic growth	EC	3.5	2.3	0.4	0.9	NA

	NL/CPB	3.5	2.25	1.25	2	2

Private consumption	EC	2.1	2.0	0.6	0.8	NA

	NL/CPB	2.1	1.5	1	1.25	1.25

Gross fixed capital formation	EC	4.9	7.1	-2.7	-0.5	NA

	NL/CPB	4.9	4.5	-1.0	2	2

General government balance	EC	0.3	1.2	0.5	0.1	NA

	NL	0.33	1.2	1.2	0.8	1.1



Economic implications of major structural reforms

In the recent past, major structural reforms have improved both the
growth capacity of the Dutch economy as well as the state of public
finances. In line with the Lisbon agenda and the country specific
recommendation that was given to the Netherlands in 2008, the key aim of
labour market policy for this Cabinet is to increase labour
participation in view of the ageing of the workforce. The government
aims to achieve a labour participation (as defined by the CPB
Netherlands Bureau for Economic Policy Analysis) of 80% in 2016 and has
included measures for improving labour participation in the coalition
agreement. This is in line with our country specific recommendation in
the context of the Lisbon strategy, namely to take further measures to
improve labour supply of women, older workers and disadvantaged groups
with a view to raising overall hours worked in the economy

In addition, in order to get a more structured view of the issue, the
Labour Market Participation Commission (Bakker Commission) was
instituted in December 2007. Its main mission was to formulate proposals
for increasing labour participation to 80%, as well as measures that
will result in people working more hours and a better-functioning labour
market. In its report Towards a future that works (Naar een toekomst die
werkt) dated 16th of June 2008, the Commission argues that the future
labour market will be very different from its current counterpart.
Instead of a shortage of work, there will primarily be shortages of
workers. That is why many people who are currently sidelined need to be
brought into play. According to the Commission, society needs all the
talented people, but high labour participation can only be achieved if
everyone who can work and wants to work maintains and continues to
develop his or her knowledge, skills and competencies.

At the end of June, the government presented its vision on the Labour
Market Participation Commission’s report to the Lower House of
Parliament. The government concurs overall with the Commission’s
analysis and approach. It aims to achieve a welfare state that is
financially sustainable, provides high-quality services, and stimulates
people to develop their talent and potential to the fullest. In the 2009
Budget Memorandum, the government proposed a coherent package of
measures to promote labour participation. 

In particular, the Cabinet reduces the unemployment benefit premiums for
employees to zero. The reasoning behind this policy action is that in
conjunction with the relatively high rate of inflation and labour market
shortages, the cooling economy threatens to lead to a price-wage spiral.
In this situation, keeping inflation under control may help to prevent a
price-wage spiral, for example, by mitigating the pay demands and
achieving balance in purchasing power. Achieving responsible wage
development, promote participation and systematically reinforce the
economy in other ways will therefore continue to be crucial. This topic
will be discussed with social partners. Also, The Cabinet has done its
utmost to prevent deteriorations in purchasing power. In line with this
aim, the Cabinet has decided not to introduce the planned VAT increase
in order to limit inflation and the risk of a price-wage spiral, thereby
also supporting purchasing power.

In addition to this general measure to increase labour participation,
the Cabinet has taken measures that are specifically focused on those
groups that lag behind in participation (women, older people,
low-skilled workers, immigrants). An overview of the most important
measures is presented below.

Timeline	

Policy response



2009

2008

2008

2009

2009

2009

2009

2008

2008

2008

2009

2009

2009

2009

2009

2009	

General

Reduce Unemployment Fund (WW) premium for employees to 0%

Women

Increase supplementary combination tax credit (ACK)

Establish Part-time Plus Task Force

Convert supplementary combination tax credit into income-based
supplementary combination tax credit (IACK)

Phase out transferability of general tax credit over 15-year period

Older workers

Convert premium exemption into a targeted temporary premium discount for
hiring older unemployed workers

Introduce bonus for continuing to work after reaching the age of 62

Vulnerable groups

Implement employment scheme to facilitate the creation of jobs for those
receiving benefits under the Work and Social Assistance Act
(‘participation jobs’)

Conclude agreements with the 39 regions of the Regional Registration and
Coordination Centres (RMCs) to address school drop-out

Introduce a stricter definition of ‘appropriate work’ in the
Unemployment Insurance Act (WW)

Introduce earned income tax credit

Introduce temporary wage cost subsidy for long-term unemployed under the
age of 50 (STAP)

Introduce integrated services at the regional Locations for Work and
Income

Introduce budget for municipalities to promote labour market
participation

Introduce a study-work requirement for people under 27 who are entitled
to receive social assistance benefits

Adjust income benefits for young disabled persons under the Invalidity
Insurance (Young Disabled Persons) Act (Wajong)



Another significant policy action from an economic perspective foreseen
for this Cabinet’s term in office is the reduction of red tape by 25%.
The Cabinet wants to achieve a perceptible reduction in the burden of
regulation for businesses and, elaborating on the recommendations of the
OECD, the World Bank and the Stevens Commission, chooses for an integral
problem-driven approach (in which the perceptions of the entrepreneur
take precedence), linked to verifiable targets. The broader and deeper
approach to addressing regulatory burden is intended to lead to a new
net reduction in administrative burden by 25%, a reduction in regulatory
burden caused by supervision (an average 25% reduction per selected
domain), compliance costs (reduction targets linked to 30 selected laws
that pose burdens), licensing and subsidies. The Cabinet also wants to
improve the services and information provided to entrepreneurs. In
addition, the Cabinet aims to reduce the pressure from legislation
imposed by other governments and by Europe (‘Better Regulation’, and
more specifically the EU action programme for reducing administrative
burden by 25%). In addition, assessment of ex ante proposed policy will
be strengthened by introducing a comprehensive system for impact
evaluation, with the key parameters for regulatory burden.

The policy measures described so far are consistent with their coverage
in the latest National Reform Programme of the Netherlands. 

Chapter 3 General government balance and debt

Policy strategy

The coalition government started its 4-year term in February 2007. In
line with its Coalition Agreement it has been investing in education,
sustainability and social cohesion, combat inflation, sustaining
purchasing power, stimulating labour participation and innovation.

The Budget Memorandum 2009 of September 2008 (the draft budget 2009)
further elaborated on the fiscal policy and rules for the years
2008-2011. It is envisaged that budget surpluses will occur from 2008
till 2011. The Cabinet aims for a structural budget surplus of 1 percent
of GDP in 2011, this is above the medium-term objective (MTO). This
enables the Cabinet to further reduce the government debt, which means
less interest costs in the future. In this way sound public finance is
achieved and a contribution is made to alleviate the increasing costs of
ageing. 

Once again, it is unavoidable to explicitly mention that the presented
forecasts are somewhat outdated by recent developments in relation to
the financial crisis. Specifically, in reaction to the financial crisis
the Dutch government undertook several transactions in the financial
markets. An overview of these transactions, complemented by an
explanation of their budgetary consequences, is provided at the end of
this chapter. The numbers presented below should be put against that
perspective. 

 

Medium-term objective and structural budget balances

The government its budgetary rules are based on the current MTO, which
is a structural deficit ranging from 0.5 to 1% of GDP. At the same time
it is recognised that this MTO, stemming from the Stability and Growth
Pact, may not be sufficient to ensure the long term sustainability of
public finance in light of the costs of ageing. For 2011, the government
has set a target for a structural surplus of 1% of GDP. This target is
effectuated in the set budgetary framework. The actual outcome will
largely depend on the results on the revenue side of the budget, since
the automatic stabilisers are allowed to work freely in the Dutch
budgetary system.

For 2008 a structural surplus of 0.9% GDP is expected. The goal of a
structural surplus of 1% GDP in 2011 will be achieved according to
Budget Memorandum 2009 and also in the years before a surplus close to
1% GDP is expected.

Table 3.1 Structural balances, budget memorandum 2009

% GDP	2008	2009	2010	2011

General government balance	1.2	1.2	0.8	1.1

 - Cyclical component	-0.3	-0.1	0.1	0.1

 - One-off and temp measures	0.0	0.3	0.0	0.0

Structural balance	0.9	1.1	0.9	1.2



Nominal budget balance

According to the Budget Memorandum 2009 presented in September 2008, the
general government is expected to have a budget surplus of 1.2% of GDP
in 2008 and again 1.2% GDP in 2009. These are improvements of 0.7% of
GDP and 0.6% of GDP respectively compared to last years Budget
Memorandum. This is partly due to expected high gas revenues, since the
gas price is linked to the oil price. According to the budget policy
these revenues are not being used for extra expenditures, but flow
directly into the budget balance. Even taking the economic slowdown into
account, it might well be feasible to have a structural budget surplus
of 1% GDP in 2011. Furthermore, unemployment is still low. Although
economic prospects for 2009 are uncertain, The Netherlands are at a good
point of departure to face challenges in the nearby future.

The recently published Autumn Report (Najaarsnota) projects a surplus
for 2008 of 1.1% of GDP, a slight downward adjustment of the projection
by 0.1% of GDP compared to the Budget Memorandum 2009 that was published
in September. 

Figure 3.1 Actual budget balance and outlook for the coming years

Actual balance and expected balance (2008 and further) according to
Budget Memorandum 2009

Debt levels and developments

The government debt was due to continue its downward trend according to
the Budget Memorandum 2009. This is the result of the positive budget
balance for 2009 and the years before, as well as GDP growth. For 2011
the debt was expected to be 36.2% GDP, the lowest figure (as % GDP)
since the start of the Dutch Kingdom in 1813. Recent developments show a
considerable upward adjustment of government debt of 15% GDP, mainly due
to the financial crisis: up from 42% GDP to 57% GDP (see box 3.1 on page
19). However, the net worth of the central government does not change
due the financial crisis because the additional debt is matched by
additional financial assets.   

Table 3.2 General government debt developments

 	2007	2008	2009	2010	2011

1. Gross debt 	

44.7	

42.1	

39.6	

38,0	

36.2

2. Change in gross debt ratio	

-2.8	

-2.6	

-2.5	

-1.6	

-1.8

Contributions to changes in gross debt

3. Primary balance 

(minus sign = surplus)	

2.6	

3.4	

3.3	

2.9	

3.1

4. Interest expenditure	

2.2	

2.2	

2.1	

2.1	

2.0

5. Stock-flow adjustment	

2.5	

1.4	

1.3	

0.8	

0.7









	(Of which denominator effect)	(2.2)	(1.9)	(1.9)	(1.1)	(1.0)



Interest expenditure is 2.1% GDP for 2009 and 2010 and decreases
slightly to 2.0% of GDP for 2011. Stock-flow adjustment (including
denominator effect) will decrease from 1.4% of GDP in 2008 to 0.7% of
GDP in 2011. In case of The Netherlands the most important explanation
of the stock flow adjustment is the denominator effect due to the
nominal GDP development. Another important explanation can be found in
the so-called financial transactions. Financial transactions are treated
as irrelevant for the calculation of the government balance, but are
relevant for the government debt (e.g. study loans). 

C

 

Chapter 4 Sensitivity analysis and comparison with previous update

Comparison with previous update

In the Council Opinion on the Dutch Stability Programme (update November
2007) the Netherlands was invited to improve long-term sustainability of
public finances by securing budgetary consolidation as planned in the
programme. Furthermore, in the Eurogroup orientations for the Mid Term
Budgetary Review the Netherlands was invited to ensure the achievement
of the budgetary targets for 2008, notably to adhering strictly to the
multi-annual expenditure ceilings and by channelling the expected
windfalls from gas receipts to better budgetary outcomes. For 2009, the
Netherlands should maintain a strong structural position by resisting
pressures to spend further windfall gas receipts. The Budget Memorandum
2009 is in line with the invitation and orientations and with the
general orientations for fiscal policies in euro area member states. For
2007 economic growth figures are slightly better than expected. For 2008
there is no difference and 2009 shows a small decline in comparison with
the previous update. This decline is a result of the changed economic
outlook. The recent developments on financial markets (and the related
financial transactions mentioned in the box in chapter 3) are however
not part of this outlook. The government debt development and the net
lending development is fairly better for 2007 until 2010 when compared
to the previous update. The debt is projected to decrease by 2.9% of GDP
in 2008, 3.4% of GDP in 2009 and 3.2 % of GDP for 2010. The government
surplus is expected to be 1.2% GDP in 2008 and 2009 and 0.8% GDP in
2010. This is mainly the result of higher revenues from taxes and social
premiums and higher gas revenues. 

Table 4.1 Divergence from previous update

	ESA Code	2007	2008	2009	2010	2011

Real GDP growth (%)







Previous update

2.75	2 .5	1.75	1.75	NA

Current update

3.5	2.25	1.25	1.75	1.75

Difference

0.75	-0.25	-0.5	0	NA

General government net lending (% of GDP)	EDP B.9





	Previous update

-0.4	0.5	0.6	0.7	NA

Current update

0.3	1.2	1.2	0.8	1.1

Difference

0.7	0.7	0.6	0.1	NA

General government gross debt (% of GDP)







Previous update

46.8	45.0	43.0	41.2	NA

Current update

44.7	42.1	39.6	38	36.2

Difference

-2.1	-2.9	-3.4	-3.2	NA

Alternative scenarios and risks including sensitivity of budgetary
projections

The current exceptionally great uncertainty surrounding future prospects
makes it difficult to present a detailed assessment. This is already the
case for 2009, and even more for 2010 and 2011. It is a very hazardous
task to attempt to quantify effects for these outer years within an
acceptable confidence interval. Nonetheless, in order to give an idea of
possible effects for the years 2010 and 2011, a limited quantitative and
a more elaborate qualitative judgement will be provided for the years
2010 and 2011. 

The sensitivity analysis is based upon three different scenarios; 1) a
fall in the oil price combined with a depreciation of the euro vis à
vis the dollar 2) a fall in the Dutch stock market index and 3) a
contraction in global demand. 

Scenario 1: a lower oil price in combination with a depreciation of the
euro vis à vis the dollar

The figures in this Stability programme are based on an oil price of $
125 per barrel of Brent oil and a euro to dollar exchange rate of 1.57
in 2009. Recently oil prices have gone down and the euro has depreciated
vis à vis the dollar. Since the gas price is linked to the oil price, a
falling oil price in euro’s will lead to lower gas revenues. This
paragraph outlines the main macro economic effects for 2009 of an oil
price decrease to $90 per barrel of Brent oil and a euro to dollar
exchange rate of 1.37 (table 4.2). These values are roughly in line with
the Commission’s own external assumptions.

In general, a lower oil price in euro’s will have a dampening impact
on inflation. This will stimulate both private consumption and corporate
investment. A depreciation of the euro vis à vis the dollar improves
the price competitiveness of Dutch exports. This leads to an increase in
export activity. These developments have a positive impact on
employment, as increased demand and profitability increase economic
activity and thereby the demand for labour. All in all, these effects
lead to an upward stimulus in GDP growth. 

In terms of government finances, a depreciation of the euro and a lower
oil price will lead to lower gas revenues, but higher tax income. The
latter is primarily the result of higher income tax and VAT revenues. At
the same time, government spending will decrease as a result of lower
inflation (inherent to our budgetary rules with real expenditure
ceilings). The combined effects of these factors lead to a rise of 0.1%
GDP of the budget balance in 2009 with respect to the baseline scenario.


Table 4.2 Effects of a USD 35 fall in the oil price in combination with
a euro-dollar exchange rate of 1.37 (in percentage points)

Comparison with baseline scenario	

	2009

Gross Domestic Product (GDP)	+0.5

Private consumption	+1.1

Corporate investment	+3.5

Goods exports (excluding energy)	+0.2

Employment	+0.7

Consumer price index (CPI)	-0.8

Wage rate market sector	+0.4

General government balance (% of GDP)	+0.1

Government debt ratio (% of GDP)	-0.2

Source: Ministry of Finance’s own calculations, based upon CPB,
“Macro Economische Verkenning 2009”, September 2008.

Scenario 2: a 4% fall in relevant world trade

The Netherlands is characterised by having an ‘open economy’, and as
such, heavily relies on trade as a source for its economic growth. In
the baseline scenario, relevant world trade is forecast to grow by 3
¾%. As a result of the global impact of the financial crisis, it is
likely that global demand will weaken. This implies a deterioration in
the growth of relevant world trade. In order to simulate what the
effects of such a development could be, this scenario will show what the
macroeconomic effects could be if relevant world trade would turn out to
be 4 percentage points lower than in the baseline scenario. This comes
down to a stagnation, as relevant world trade would then contract by
¼%. 

Stagnation in relevant world trade has substantial effects. Most
obviously, exports of goods would contract heavily. As this immediately
affects profitability ratios, corporate investments suffer. Higher
unemployment lowers the wage rate of the market sector. In addition,
reduced economic activity leads to lower employment. The overall effect
on GDP is considerable, as it is projected to deteriorate by 1.1%,
resulting in a growth rate of close to zero in this scenario. 

As far as the state of public finances is concerned, the developments
sketched above will result in lower tax revenues. Especially proceeds
from taxes and premiums on wages and the collected VAT (through lower
private consumption) will diminish. In contrast, gas revenues are not
immediately affected, and the same largely goes for government
expenditures (as the inflationary effect is modest). The composed effect
of these effects would lead to a deterioration of 0.2 percentage points
of the budget balance with respect to the baseline scenario. Government
debt would increase by 0.4 percentage points. 

Table 4.3 Effects of a 4% fall in relevant world trade (in percentage
points)

Comparison with baseline scenario	

	2009

Gross Domestic Product (GDP)	-1.1

Private consumption	-0.4

Corporate investment	-2.4

Goods exports (excluding energy)	-2.9

Employment	-0.3

Consumer price index (CPI)	-0.2

Wage rate market sector	-0.7

General government balance (% of GDP)	-0.2

Government debt ratio (% of GDP)	+0.4

Source: Ministry of Finance’s own calculations, based upon CPB,
“Macro Economische Verkenning 2009”, September 2008.

 Scenario 3: a 40% fall in the stock market indices

In the baseline scenario the Dutch stock market index, the AEX, is
assumed to show an average value of 420 points. The recent
intensification of the financial crisis has led to a considerable fall
in the index, which currently (mid November) fluctuates around a value
of 250 points, a fall of 40% compared to the value in the baseline
scenario. In line with this development, this paragraph outlines the
main macro economic effects in 2009 of a 40% fall in the AEX stock
market index (table 4.4)).

Each index point is estimated to represent a stock market value of
approximately €1 billion. This entails that a fall of 170 points on
the AEX index represents a wealth loss of €170 billion. This loss is
primarily borne by Dutch citizens, as they represent the biggest portion
of investors. The main economic channel through which this development
will affect economic growth is lower private consumption through a lower
disposable income. This results in a downward revision of 0.2 percentage
points.

As far as public finances are concerned, the affected variable is tax
revenue. Lower private consumption results in less revenues of VAT. Gas
revenues and expenditures are largely unaffected (as inflation is
unchanged). This results in a deterioration of the budget balance by 0.1
percentage points in 2009.

Table 4.4 Effects of a 40% fall in stock market indices (in percentage
points)

Comparison with baseline scenario	

	2009

Gross Domestic Product (GDP)	-0.2

Private consumption	-0.7

Corporate investment	-0.2

Goods exports (excluding energy)	+0.1

Employment	0

Consumer price index (CPI)	0

Wage rate market sector	-0.1

General government balance (% of GDP)	-0.1

Government debt ratio (% of GDP)	+0.2

Source: Ministry of Finance’s own calculations, based upon CPB,
“Macro Economische Verkenning 2009”, September 2008.

Comparing these scenarios for 2009 to recent developments, we can
conclude that in fact all three scenarios seem to occur simultaneously
as downside risks are materialising. The past months we have seen a fall
in the oil price, a depreciation of the euro vis à vis the dollar, a
fall in stock market indices and a contraction in global demand,
resulting in lessened trade (prospects). 

When one would combine the effects of the three scenarios, the result is
a significant deterioration in growth prospects, resulting in a downward
revision of 0.75 percentage points for 2009 in comparison with the
baseline scenario, which comes down to a GDP growth of roughly 0.5%.
Also the budget balance would deteriorate by 0.2 percentage points.
Government debt would then increase by 0.3 percentage points.

Possible implications for 2010 and 2011 

If one were to assume that the economic crisis would persist for a
longer period and economic growth would not pick up in both 2010 and
2011, the budget balance would deteriorate further. Since the Dutch
Cabinet is committed to a continuation of trend based budgetary policy,
expenses would continue as planned in 2010 and 2011. The budget balance
would therefore primarily deteriorate as a result of declining revenues,
due to the negative impact on consumption and employment. This is fully
in line with a free working of the automatic stabilisers. 

As an illustration, assume that economic growth in 2010 and 2011 would
also amount to 0.5%, 1.5 percentage points short of the 2% growth in the
baseline scenario. In that case, the budget balance would approximately
fall by another 1.5 percentage points (approximately 50% of the extra
output gap of 3%, using the average budgetary elasticity of around
0.55). This would result in a budget balance of –1/2 % GDP in 2011.
The structural balance 2011 in this scenario would show a positive sign.
The current MTO of a structural deficit ranging from 0.5 to 1% of GDP
should therefore be adhered to.

As the Netherlands has shown budget surpluses over the past years,
automatic stabilisers should have the necessary room to act freely.
Thereby, it must be noted that the deterioration in 2009 that stems from
a decline in gas revenues is already accounted for in 2010 and 2011, as
the projected oil price in those years is conservatively low (see
chapter 2). The expected deterioration of the budget balance in those
years is thus expected to be less severe. In conclusion, although a
deterioration of the budget balance is highly likely given the current
prospects, with the current knowledge there is no reason to assume that
this will result in a breach of the arrangements made in the Stability
and Growth Pact. 

Chapter 5 Quality of public finances

Policy strategy

As established by the Working Group on the quality of public finances,
there is an undeniable link between the quality of public finances
policies and economic growth. The link between the two variables, is,
however, not straightforward, and in fact comprises multiple dimensions.
The Working Group has identified two main layers, each consisting out of
several components. More specifically, Layer 1 describes public finance
processes and comprises the composition, efficiency and effectiveness of
expenditure, the structure and efficiency of revenue systems, and fiscal
governance. Layer 2 describes public finance outcomes and is composed of
two components: the level of expenditure and revenues and fiscal
position and sustainability. Furthermore, it must be noted that the
Working Group acknowledges that public finances policies cannot be
properly analysed without considering the influence represented by
environmental factors and in particular the effect of public policies
impacting on market functioning and business environment. 

The Working Group is currently developing a comprehensive and workable
framework, mainly through the development of indicators for each
component that allow for a quantitative international comparison amongst
the different subcategories of the quality of public finances. This is,
however, still work in progress and therefore not presented here. The
Cabinet endorses the importance of the Working Group’s analysis, as it
would very much welcome a workable framework for analysing the quality
of public finances. However, given the current lack of such a framework,
what will follow is an account of developments on both the expenditure
and revenue side, thereby touching upon several components Layer 1 and
Layer 2. Fiscal position and sustainability will be covered extensively
in chapter 6, whilst fiscal governance will be dealt with in greater
detail in chapter 7.

Economic growth, sustainability and solidarity are the key elements of
this Cabinet’s policy. When the Cabinet came into office, it stated
the ambition to realise a total of 74 intermediary and final targets
during its term. These specific targets improve the accountability of
government policy. To reinforce sustainable growth, the Cabinet has
identified six pillars within public expenditure. In 2009, increases in
expenditures amount to €2.5 billion of which a significant amount will
go to education. Spending on education increases by 1.5% yearly in real
terms over the Cabinet term. Increased investment in education is an
example of a policy enhancing the potential for sustainable growth. In
2011, the increase in expenditures in the six pillars is foreseen to
amount to € 6.9 billion. At the same time, cutbacks are expected to
total €7.1 billion. Taken together, total expenditures will rise by
€ 20.8 billion in real terms over the Cabinet’s term in office.

The government is strengthening the sustainable growth capacity of the
economy not only through a substantial package of extra investments but
also through a shift in taxation away from labour to polluting
activities and consumption. Substantial changes in the tax and social
security structure are being introduced to stimulate participation in
the labour market. Over the Cabinet’s term in office, revenues will
increase by €46 billion, of which €11.5 billion is accounted for by
policy changes.

Developments on the expenditure side

The government’s new policies are categorized into six pillars that
will contribute to an economy able to withstand challenges on a short,
medium and long horizon. The quality of public finances as a focus on
enhancing the efficiency and effectiveness in public spending and in
particular raising sustainable growth is reflected in four out of these
six pillars. These four pillars are: “Towards an innovative,
competitive and enterprising economy” (pillar II), “Sustainable
living environment” (pillar III), “Participation and social
cohesion” (pillar IV) and “A more service-oriented and more
efficient government” (pillar VI). These are the pillars that will
also contribute most to the fulfilment of the goals of the Lisbon
strategy for economic growth and jobs through sustainable development.
The pillars and the attending increase in expenditure are given in the
table below.

Tabel 5.1 Expenditure increases in the six pillars

	2008	2011

I. An active and constructive role of the Netherlands in Europe and the
world	100	400

II. Towards an innovative, competitive and enterprising economy	200	850

III. Sustainable living environment	215	800

IV. Participation and social cohesion	1765	3578

V. Safety, stability and respect	200	700

VI. A more service-oriented and more efficient government	175	600



The Cabinet is on schedule with the implementation of the investments in
public services as stated in the Coalition Agreement. In 2009, something
over 60 percent of the available means is allocated to the budgets of
the ministries (for more details: graph PM). Means for investments in
pillar IV ‘participation and social cohesion’, are – in line with
the Coalition Agreement – already for almost 70% allocated to the
budgets of the ministries. Pillar IV contains, amongst others,
investments in health care, social cohesion and child care. 

Pillar II aims at enhancing the economic structure through various
measures to boost competitiveness and innovation. Extra money is to be
spent on matters such as research and social innovation programmes in
the field of health care, water management and (sustainable) energy. To
stimulate entrepreneurial initiative, extra funds are allocated to,
among other things, innovation vouchers to all small and medium-sized
businesses, granting micro-credits to business starters and rapidly
expanding small and medium-sized enterprises.

Pillar III concerns the creation of a sustainable living environment in
combination with a decreased dependency on fossil fuels. The environment
is an important exponent of market failure. As the benefits of
beneficial behaviour accrue to everyone, whereas the costs are born by
individuals, the market fails. Government intervention can therefore
increase the well-being of its citizens, now and in the future. In 2008,
funds will be available for energy-saving instruments and
environmental-friendly energy production. Additional measures will be
taken to promote a more sustainable living environment and make the
Netherlands more climate-proof. In 2008 € 215 million extra will be
spent on creating a sustainable environment. 

Pillar IV aims at participation. Labour participation is the foremost
route to participation in society and the creation of greater well-being
for all. In 2009, 2,8 billion euro will be spent on Child Care. This is
an increase of 700 million euro since 2007. In the paragraph discussing
the economic and budgetary effects of major structural reforms, the
measures taken are described in more detail.  

Pillar VI aims at more service-oriented and more efficient government.
On the one hand, this entails some extra outlays for improving services
and enhancing the cultural sector. On the other hand, it also includes
an expenditure cutback. Government policy will be more efficiently
implemented resulting in a reduction of almost 13,000 jobs in the
government sector over the Cabinet’s term in office (a saving of €
630 million per year). Moreover, efficiency measures will be taken
within the public sector as regards material expenditure, in particular
through a more sober information and communication policy. Also, more
efficient implementation of social security schemes will both reduce
expenditures and increase the effectiveness of public policy. This is
achieved by, for instance, merging the municipal authorities’ work
reinstatement and labour participation budgets which are aimed at
reducing the number of income support applications.

Although the government increases spending, the budget balance will
improve. The government is targeting a structural surplus of 1% of GDP
in 2011. Of course, the budgetary framework underlies policy choices in
all six pillars and, as such, makes policy choices more efficient and
effective. Sound public finances are a prerequisite for an environment
in which the economy can flourish. 

The table below presents an overview of developments in expenditures.
While expenditures on public service clearly decrease in the coming
years, expenditures on infrastructure, safety and education increase
more than expenditures on social security. Notwithstanding the overhaul
of the health care sector in 2006, expenditures on health care are
expected to increase by 3% in real terms. 

Table 5.2 Developments in categories of government expenditures

	2008	2011	2009-2011

	% of GDP	% of GDP	Real yearly growth

Public service	10.0	9.5	- ½

Safety	1.8	1.9	3¼

Defence	1.2	1.2	0

Infrastructure	1.7	1.8	2½

Education	5.1	5.3	1½

Publicly financed health	8.9	9.6	3

Social security	11.2	11.2	2½

Transfers to companies	1.9	1.9	1¾

International cooperation	2.3	2.2	½



Administrative burden

Progress may be hindered by an overabundance and overcomplexity of rules
or overly rigid implementing practices. That is why the government aims
to further reduce regulatory costs, including administrative
burdens, for businesses, citizens, professionals and institutions
(within government). Working in tandem with target groups, such as
entrepreneurs, citizens and professionals (at the workplace), the
government aims to curb complex rules and rigid implementing practices.
This approach is based on trust and the principle that more
responsibility for the parties to interpret the rules involved can also
lead to a more efficient and effective way of monitoring compliance.
Hence, firm measures will be taken only in cases where trust is
breached. To ensure that citizens, professionals and entrepreneurs
actually assume responsibility the government will improve the quality
of its services. In addition, the government aims to reduce the pressure
from legislation imposed by other governments and by Europe (‘Better
Regulation’, and more specifically the EU action programme for
reducing administrative burden by 25%). Thereby, assessment of ex ante
proposed policy will be strengthened by introducing a comprehensive
system for impact evaluation, with the key parameters for regulatory
burden.

Following an earlier net reduction in the administrative burden of 20%,
the Cabinet announced in its policy programme that there would be a
perceptible reduction in the administrative burden for businesses. More
specifically, there will be a new net reduction in the administrative
burden by 25%, a reduction in regulatory burden as a result of
supervision (an average 25% reduction per selected domain), compliance
costs (reduction targets linked to 30 selected laws that pose burdens),
licensing and subsidies. The Cabinet wants to achieve a perceptible
reduction in the burden of regulation for businesses and, following from
the recommendations as suggested by the OECD, the World Bank and the
Stevens Commission, chooses for an integral problem-driven approach (in
which the perceptions of the entrepreneur take precedence), linked to
verifiable targets. This enables the Cabinet to assess whether there
actually is a noticeable reduction in the regulatory burden for
businesses.

Developments on the revenue side

The cabinet has appointed a number of priorities in policy areas with
direct implications for the revenue side. These priorities are greening,
encouraging labour participation, encouraging innovative
entrepreneurship, and simplification. 

The tax policy of this Cabinet marks a step towards the greening of the
Dutch tax system The Cabinet aims to take transparent measures that
better reflect the environmental effects of products in consumer prices.
The most significant step has been taken in 2008 when a number of new
green taxes have been implemented and pollution was taxed heavier. The
Cabinet plans to institute further tax greening measures in 2009. The
details were set out in a letter sent to the Lower House of Parliament
in May 2008. The primary measures to be taken will be in relation to
vehicle taxes, specifically car and motorcycle tax (BPM) and motor
vehicle tax (MRB), aimed at further environmental differentiation. BPM
will become a levy based on catalogue price with a tax on emissions. The
factors that play a defining role in decisions about tax greening
measures include purchasing power development, international
competitiveness, and the market price development of energy products.

Encouraging labour participation is a key objective of this government.
The EU Spring Council has recommended that the Netherlands should take
further steps to improve labour participation among women, older workers
and disadvantaged groups in order to increase the total number of hours
worked in the economy. In addition, the Labour Market Participation
Commission (Bakker Commission) was instituted in December 2007 to
formulate proposals for increasing labour participation to 80%, as well
as measures that will result in people working more hours and a
better-functioning labour market. This culminated in the report
“Towards a future that works (Naar een toekomst die werkt)” dated 16
June 2008. At the end of June, the government presented its vision on
the Labour Market Participation Commission’s report to the Lower House
of Parliament. 

In the 2009 Budget Memorandum, the Cabinet proposed a coherent package
of measures to promote labour participation, greatly inspired by the
analysis by the Labour Market Participation Commission. In particular,
to stimulate employment in general, the Cabinet reduces the unemployment
benefit premiums for employees to zero, thereby making work pay (more).
As far as the ‘low employment groups’,  a key aspect of the approach
to improve participation among women, older workers and vulnerable
groups is stronger financial incentives in the fiscal arena to make it
financially more attractive to work, and to work longer. 

To encourage people with a small part-time job to work more hours, an
income-based combination tax credit (IACK) will be introduced and
intensified in 2009, for a total of € 0,5 billion. This will serve as
an incentive to increase employment. Starting on 1 January 2009, the
transferability of the general tax credit will be phased out over a
15-year period, making it financially more attractive for non-working
partners (usually women) to accept work.  

In order to increase labour participation among older workers, the
government wants to encourage people to continue working until they
reach the age of 65 and eliminate as many obstacles to working after 65
as possible. To this end, a bonus for continuing to work after 62 years
will be introduced as an incentive for working longer. Employers who
hire unemployed people aged 50 years or older or who have employees 62
or older will also be eligible for a significant discount on social
insurance premiums. 

Lastly, the government will be instituting a range of measures to
increase labour participation among vulnerable groups. The introduction
of an earned income tax credit on 1 January 2009 will make it more
cost-effective to work, especially for semi- and unskilled workers (0,2
billion). The income schemes for young disabled persons (Wajong) will be
modified to focus more on finding and maintaining gainful employment. In
the implementation of the reintegration process, regional Locations for
Work and Income will provide integrated services. This gives employers a
single point of contact for the region. For youngsters under 27 who are
eligible for social assistance benefits a study-work requirement will be
introduced. The aim is to introduce this on 1 July 2009.

The Research and Development (Promotion) Act (WBSO) will be intensified
in phases, increasing from €39 million in 2009 to €115 million in
2011. Most measures with respect to innovative entrepreneurship are
taken on the expenditure side (pillar II).

Finally, a solid business climate ensures economic growth and dynamic
development. Good preconditions for entrepreneurship contribute to
innovation and productivity. To this end, the government will further
simplify the procedures for starting a business. A result of this is
that it is currently already possible to start a business within one
week. One measure to be taken in this context is the abolishment of the
required minimum capital. The Cabinet is introducing two key measures to
bring the instruments for starters and SMEs more in line with their
situation: a one-stop shop for hiring the first employee (employers need
only contact the tax authorities) and expansion of the services of the
Answers for Businesses (Antwoord voor Bedrijven) initiative (the former
online business information service counter). These measures meet the
goals set during the 2006 EU Spring Council to improve the business
climate. Finally, the Cabinet wants to achieve a perceptible reduction
in the burden of regulation for businesses and has taken measures to
achieve this (see chapter 2 for more detailed information).

Chapter 6 Sustainability of public finances

Policy strategy

The Dutch Cabinet is keen to meet the challenges of an ageing
population. Sustainable public finances are part of the broader concern
for responsible intergenerational policymaking. The ageing of the Dutch
population will put pressure on the sustainability of public finances.
Demographic projections show that with unchanged policies the ratio of
pensioners to working persons will double in the period up to 2035.
This, in turn, will lead to a widening discrepancy between expenditure
and income from tax and social insurance contributions, since
age-related expenditures (on state old-age pension (AOW) and health
care) will rise faster than revenues. 

According to both the CPB Netherlands Bureau for Economic Policy
Analysis’ and the EPC/European Commission’s latest study on the
effects of ageing, public finances are not yet sustainable. An important
difference between the two studies relate to the calculation of tax
revenues. In the CPB Netherlands Bureau for Economic Policy Analysis’
method the taxation of pension benefits instead of pension premiums is
included whereas the commonly agreed method does not take into account
the deferral of tax revenues. These deferred tax revenues are of
importance when assessing the sustainability of Dutch public finances
and should be taken into account.

In 2006, the sustainability gap was calculated to be around 1.5% of GDP
in 2011 by the CPB Netherlands Bureau for Economic Policy Analysis . At
the beginning of 2007, revised life expectancy projections caused this
sustainability gap to rise to 2.5% GDP. The sustainability report of the
European Commission in conjunction with the EPC calculated a
sustainability gap close to this figure: 2.4% of GDP. This pointed to
the need for further action.

Table 6.1 Sustainability of public finances

% of GDP	2005	2010	2020	2030	2050

Total expenditure*	45.1	45.2	47.0	49.3	50.4

Of which:

- age-related expenditure	20.5	20.6	22.4	24.7	25.8

Pension expenditures	7.4	7.6	9.0	10.7	11.2

Health care	6.1	6.3	6.7	7.1	7.4

Long term care	0.5	0.5	0.5	0.8	1.1

Total revenue*	45.9	45.7	45.6	45.3	44.8

Pension reserve fund assets	140.8	159.0	196.1	230.5	241.9

Assumptions

Labour productivity growth	0.8	1.7	1.7	1.7	1.7

Real GDP growth	1.4	2.1	1.6	1.3	1.7

Total participation rates

(aged 15 – 64)	77.1	77.8	79.1	79.3	80.5

Population aged 65+ over total population (%)	20.7	22.2	29.2	37.2	40.6

* These figures have not been published by the AWG. The method is
derived from the sustainability report 2006: the non-age-related
revenues and expenditures are kept constant at the 2005 level (taken
from table a.3.5 of Public Finance Report 2007). Age-related revenues
(property income, D4) and expenditures are then added to make up the
grand total.

Policies to enhance sustainability

The Cabinet poses much emphasis on addressing the costs of ageing and
promoting the sustainability of public finances. There are three general
ways in which the government can tackle the sustainability issue: 1)
saving through budget surpluses, 2) increasing labour force
participation and 3) implementing reforms in ageing-sensitive
institutions (e.g. social provisions). The government employs all three
methods. 

The government saves by achieving a budget surplus in all upcoming
years. This will enable the government to pay off a share of its debt.
In the baseline scenario, debt is projected to decrease to below 40% of
GDP. At the same time, the stock of natural gas resources will diminish.
According to the CPB Netherlands Bureau for Economic Policy Analysis,
the natural gas stock will decrease by 7% of GDP between 2007 and 2011.
As a result of the lower public debt, interest expenditure will decrease
and part of the burden of ageing is shifted away from future
generations. 

Increased labour force participation will also benefit the
sustainability of public finances. Labour force participation in the
Netherlands has been rising, and is projected to rise for the years to
come, mainly due to increasing participation of women. A more extensive
overview of the economic and budgetary implications of structural
reforms can be found in chapter 2. Most important for improving the
sustainability of public finances through increased participation are:
(1) the gradual abolition of the transferability of the general tax
credit between fiscal partners, except for parents with children under
the age of six, (2) the introduction of an earned income tax credit and
an individual and income-related tax credit for parents combining work
and care, which will make participating in the labour force more
attractive and (3) a shift in the tax burden from labour to wealth and
the environment. Decreasing income taxes will have a positive effect on
participation across the board (4) the introduction of the
‘doorwerkbonus’, elderly employees receive a bonus in taxation to
encourage participation as of the year in which they turn 62.  

In addition to these measures, reforms have also been implemented to
curb ageing-sensitive expenditures on health care and state old-age
pensions. These measures will also improve the sustainability of public
finances after the Cabinet term ends in 2011. 

First of all, as of 2011 people aged 65 or over and born after 1945 will
provide a ‘sustainability contribution’. This is implemented by
means of a limited indexation of the second tax bracket, which ends in
2009 at € 32.127. 

To curb expenditures on health care, the deductibility of health
expenditures is reduced. In addition, a private contribution according
to ability to pay will be required under the Exceptional Medical
Expenses Act (“AWBZ, Algemene Wet Bijzondere Ziektekosten”).

All these policies will help to improve the sustainability of the
government finances. They are expected to continue contributing to this
goal even after when the Cabinet’s term has ended in 2011. All
measures taken together will improve the sustainability gap by 0.7
percentage points.

Chapter 7 Institutional features of public finances

Fiscal rules of the Cabinet

Set of fiscal rules

As mentioned before, the central goal of the budgetary policy of the
Cabinet is to achieve a budget surplus of the general government of 1%
of GDP in 2011, measured in structural terms (EU definition). It should
be stressed that the chosen set of fiscal rules is key to realizing the
2011 surplus goal.

At one of its first meetings the Cabinet decided on the (new) set of
fiscal rules, based on past experiences with the fiscal rules of
previous Cabinets. The so-termed ‘trend based budgetary policy’ in
use since 1994 will be continued during the term of this Cabinet. This
is unchanged. On the basis of past experiences the new set includes
three improvements.

Continuation of trend based budgetary policy

The most prominent feature of the new set of fiscal rules is the
continuation of the trend-based budgetary policy. The three key
characteristics of the rules are maintained: (i) fixed real expenditure
ceilings, (ii) an iron curtain between expenditure and revenue and (iii)
a single decision-making moment for the new budget. 

The system of fixed expenditure ceilings will be maintained by the
Cabinet. For every year in the period 2008-2011 fixed ceilings have been
set and published in the Budget Memorandum 2008. The scope of the
respective ceiling remains unchanged: i) state government, ii) health
care and iii) social security and labour market. The expenditure
ceilings are again measured in real terms (the deflator is the price of
national expenditure).

A strict division between expenditure and revenue remains (see box below
for extra information on this issue). As regards revenues, i.e. taxes,
social insurance contributions and gas revenues, automatic stabilizers
should be able to operate freely during the Cabinet period. There is one
exception to this rule. The operation of the automatic stabilizers on
the revenue side can be restricted if the government deficit exceeds the
so-called signal value of 2% of GDP. When the deficit reaches 2% of GDP,
the rules state that government shall take measures to prevent a further
deterioration of the government deficit so that it does not exceed the
3% of GDP threshold value of the SGP.

The system in which there is, in principle, only a single
decision-making moment on the new budget will be continued. Every
spring, the Cabinet decides on the (expenditure side of the) new budget
and on the execution of the current budget. The Cabinet looks further
into revenues (taxes) and measures concerning the purchasing power of
specific groups within society in August. The single decision moment
provides relative rest in fiscal policy.

Last but not least, it should be mentioned that the rules for the
day-to-day fiscal management have been included in the set of fiscal
rules. Important elements are that the line ministries should solve
expenditure overruns in their own budget and that windfalls may not be
used for new policies.   

Three improvements

On three points the set of fiscal rules has been improved. These
improvements are the result of past experiences. It is not the first
time since the introduction of the ‘structural budgetary policy’ in
1994 that changes were introduced in the set of fiscal rules. 

The first improvement is the exclusion of interest expenditure on the
state debt from the expenditure ceilings. This exclusion makes the
expenditure ceilings less vulnerable to the economic cycle. Second, the
so-called ‘signal value’ (i.e. the value when measures should be
taken in order to avoid further worsening of the deficit) has been
strengthened by the new Cabinet. Under the previous government a signal
value of the government deficit of 2.5% of GDP was in force. This 2.5%
has been replaced by a value of 2% of GDP. Third, the assumption of the
economic growth underpinning fiscal policy has been changed. This
Cabinet uses trend-based economic presumptions. Before, so-called
cautious economic assumptions were in use. The advantage of trend-based
economic vis-à-vis cautious economic assumptions is above all a
managerial one. The use of cautious presumptions creates additional room
in future budgets. When these reserves materialise every year around the
time of the single decision making moment the Cabinet could become
overly optimistic where the room for manoeuvre in fiscal policy is
concerned. Such an optimistic atmosphere is not helpful if, for example,
spending cuts are needed. As a result, unnecessary windfalls and the
accompanying political pressure for higher expenditure and/or tax cuts
are prevented. Moreover, this would not create a transparent forecast.  

Relationship between quality of public finances and institutions

The existence of independent organizations in the field of forecast and
official statistics contributes to (a higher level of) the quality of
public finances in the Netherlands. The Netherlands has a long standing
tradition in the area of budgetary institutions. The statistical office
(Statistics Netherlands) has been in existence for over 100 years and
the forecasting agency, the CPB Netherlands Bureau for Economic Policy
Analysis, for over 50 years.

Statistical governance

Statistics Netherlands is the official producer of most Dutch
macroeconomic statistics. Key indicators such as GDP, CPI, government
deficit and debt and the national accounts are compiled by Statistics
Netherlands. All public finance data of past years, whether on an annual
or a quarterly basis, are compiled by Statistics Netherlands. Statistics
on the quality of public finances such as COFOG statistics are also
compiled by Statistics Netherlands. 

The status of Statistics Netherlands has a strong legal basis in the
Statistics Act 2003. Statistics Netherlands has the legal status of an
independent public body and operates on the basis of an independent
statute. Its independence allows it to compile reliable and high quality
statistics on public finances. In 2005, Statistics Netherlands and the
Ministry of Finance concluded a protocol on the Netherlands’ reports
to the European Commission on the general government balance and debt
(the notifications before April 1 and October 1 on the general
government deficit and debt and the quarterly public finance accounts
and the 31 March report). The protocol contains agreements about the
responsibilities and division of tasks between the Statistics
Netherlands and the Ministry of Finance regarding these reports. The
Ministry of Finance compiles figures on public finance for the forecast
years. These calculations are based on economic forecasts made by the
CPB Netherlands Bureau for Economic Policy Analysis, which also has an
independent statute. In Autumn 2007, the IMF examined data quality of,
amongst other things, the government finance statistics of the
Netherlands. The IMF ROSC shows that, where Government Finance
Statistics are concerned, the Netherlands attained the highest score
(‘practice observed’) on 18 out of 22 categories.

The role of independent forecasts

The past few years have witnessed a discussion on the role of
independent fiscal councils as guardians of sound budgetary policy
making. In 2006 the IMF took a closer look at the Dutch budgetary
framework in its fiscal ROSC for the Netherlands. According to this
report, one of the outstanding features was the CPB Netherlands Bureau
for Economic Policy Analysis’ unique role in the policy making process
owing to its technical reputation and its independence. The CPB
Netherlands Bureau for Economic Policy Analysis provides the economic
outlook as well as its own budgetary outlook. The economic outlook is
independent input into the budget making process, while the budgetary
outlook provides an independent second opinion on the government’s
budget and institutional measures. Moreover, the CPB Netherlands Bureau
for Economic Policy Analysis performs cost-benefit calculations of
public investment projects. The IMF concluded: “The CPB Netherlands
Bureau for Economic Policy Analysis appears to span the full spectrum of
activities identified in the recent IMF’s analysis of independent
Fiscal Councils.”

ANNEX I Tables

Table A.1 Macroeconomic prospects

	ESA Code	2007	2007	2008	2009	2010	2011



Level

(bln €)	rate of change	rate of change	rate of change	rate of change
rate of change

Real GDP	B1*g	567.1	3.5	2 ¼	1 ¼	2	2

Nominal GDP 	B1*g	567.1	5	4 ¼	4 ½	3 ¾	3 ¾

Components of real GDP

Private consumption expenditure	P.3	264.3	2.1	1 ½	1	1 ¼	1 ¼

Government consumption expenditure	P.3	142.5	3.0	1 ¼	2	1 ½	1 ½

Gross fixed capital formation	P.51	113.2	4.9	4 ½	-1	2	2

Changes in inventories (∆)	P.52 +

P.53	- 1.6	-0.2	0.0	0.2	0	0

Exports of goods and services	P.6	424.8	6 ½	3 ¾	2 ¾	5 ¾	5 ¾

Imports of goods and services	P.7	376.1	5.7	3 ¾	2 ½	5 ½	5 ½

Contributions to real GDP growth

Final domestic demand

520.0	2.7	1.9	0.8	1 ¼	1 ¼

Changes in inventories (∆)	P.52+

P.53	-1.6	-0.2	0.1	0.0	0	0

External balance of goods and services	B.11	48.7	1	0.3	½	½	½



Table A.1b Price developments

	ESA Code	2007	2007	2008	2009	2010	2011



level	rate of change	rate of change	rate of change	rate of change	rate
of change

GDP deflator

100	1.5	2 ¼	3 ½	1 ¾	1 ¾

Private consumption deflator

100	1.6	3	3 ¼	1 ¾	1 ¾

HICP

100	1.6	2 ½	3 ¼	2	2

Public consumption deflator

100	2.1	2 ½	4 ½	3	3

Investment deflator

100	1.4	1 ¾	2 ½	1	1

Export price deflator

100	1.2	5 ¼	2 ½	-1	-1

Import price deflator

100	1.3	6	2 ¼	-1	-1



Table A.1c Labour market developments

	ESA Code	2007	2007	2008	2009	2010	2011



level	rate of change	rate of change	rate of change	rate of change	rate
of change

Employment (x thousand persons)

8613	2.5	2	½	½	½

Employment (bln hours worked)

12.0	2.3	1¾	¼	½	½

Unemployment rate 

(% of labour force)

4.5	4.5	4	4 ¼	3	3

Labour productivity (persons)

65.8	1.0	¼	¾	1 ¼	1 ¼

Labour productivity, hours worked

9.8	1.1	½	1	1 ½	1 ½

Compensation of employees	D.1	279.7	3.4	4 ¼	4	4 ¼	4 ¼

Compensation per employee

47.3	3.2	4 ¼	4	3 ½	3 ½



Table A.1d Sectoral balances

% of GDP	ESA Code	2007	2008	2009	2010	2011

Net lending/borrowing vis-à-vis the rest of the world	B.9	9.8	8.5	9.5
7.5	8.0

Of which

- Balance on goods and services

8.6	8.4	8.8	7.5	7.8

- Balance of primary incomes and transfers

2.7	1.7	1.8	1.2	1.3

- Capital account

-1.5	-1.5	-1.0	-1.2	-1.2

Net lending/borrowing of the private sector 

9.2	7.2	8.2	6.8	6.8

Net lending/borrowing of general government 

0.3	1.2	1.2	0.8	1.1

Statistical discrepancy

0.3	0.1	0.1	0.1	0.1



Table A.2 General government budgetary prospects 

 	ESA Code	2006	2006	2007	2008	2009	2010	2011

 	 	level	% of GDP	% of GDP	% of GDP	% of GDP	% of GDP	% of GDP

Net lending (EDP B9) by subsector

1.General government	S.13	1973	0.3	1.2	1.2	0.8	1.1	1973

2. Central government	S.1311	3465	0.6	1.2	1.5	0.8	0.8	3465

3. State government	S.1312	M	M	M	M	M	M	M

4. Local government	S.1313	-40	0.0	0.0	0.0	0.0	0.0	-40

5. Social security funds	S.1314	-1452	-0.3	0.0	-0.3	0.0	0.3	-1452

General government (S13)

6. Total revenue	TR	258772	45.6	46.6	46.3	46.1	46.3	258772

7. Total expenditure	TE	256918	45.3	45.4	45.1	45.3	45.2	256918

8. Net lending/borrowing	EDP B9	1973	0.3	1.2	1.2	0.8	1.1	1973

9. Interest expenditure	EDP D.41	12525	2.2	2.2	2.1	2.1	2.0	12525

10. Primary balance

14498	2.6	3.4	3.3	2.9	3.1	14498

11. One-off and other temporary values

0	0.0	0.0	0.3	0.0	0.0	0

Selected components of revenues

12. Total taxes (12=12a+12b+12c)

141067	24.9	25.6	25.6	25.5	25.2	141067

12a. Taxes on production and imports	D.2	71213	12.6	12.7	12.7	12.7	12.6
71213

12b. Current taxes on income, wealth etc.	D.5	67974	12.0	12.6	12.6	12.5
12.3	67974

12c. Capital taxes	D.91	1880	0.3	0.3	0.3	0.3	0.3	1880

13. Social contributions	D.61	81107	14.3	14.5	14.1	14.5	15.0	81107

14. Property income 	D.4	12648	2.2	2.6	2.5	2.3	2.2	12648

15. Other revenues

23950	4.2	3.9	4.1	3.8	3.9	23950

16.=6. Total revenue 	TR	258772	45.6	46.6	46.3	46.1	46.3	258772

PM: Tax burden (D.2+D.5+D.61+D.91-D995)

222174	39.2	40.1	39.7	40.0	40.2	222174



Selected components of expenditure

17. Compensation of employees and intermediate consumption	D.1+P.2 
92987	16.4	16.4	16.5	16.5	16.5	92987

- 17a. Compensation of employees	D.1	51936	9.2	9.2	9.3	9.3	9.3	51936

- 17b. Intermediate consumption	P.2	41051	7.2	7.2	7.2	7.2	7.2	41051

18. Social payments (18=18a+18b)

113212	20.0	20.0	19.6	19.8	19.8	113212

18a. Social transfers in kind supplied via market producers	D.6311.

D63121.

D63131	54428	9.6	9.6	9.4	9.5	9.5	54428

18b. Social transfers other than in kind	D.62	58784	10.4	10.4	10.2	10.3
10.3	58784

19.=9. Interest expenditure 	EDP D.41 	12525	2.2	2.2	2.1	2.1	2.0	12525

21. Subsidies	D.3	7159	1.3	1.3	1.3	1.3	1.3	7159

21. Gross fixed capital formation	P.51	18910	3.3	3.4	3.5	3.5	3.5	18910

22. Other 	 	12125	2.1	2.1	2.1	2.1	2.1	12125

23.=7. Total expenditure	TE	256918	45.3	45.4	45.1	45.3	45.2	256918

Government consumption (nominal)	P3	142481	25.1	24.9	25.1	25.4	25.7
142481



Table A.3 General government expenditure by function 

% of GDP	COFOG Code	2006	2007	2011

1 General public service	1	7.3	7.3	7.0

2 Defence	2	1.4	1.4	1.4

3 Public order safety	3	1.8	1.8	1.8

4 Economic affairs	4	4.7	4.7	4.7

5 Environmental protection	5	0.8	0.8	0.8

6 Housing and community amenities	6	1.0	0.9	0.9

7 Health	7	5.7	5.7	6.0

8 Recreation. culture and religion	8	1.4	1.3	1.3

9 Education	9	5.1	5.1	5.1

10 Social protection	10	16.4	16.3	16.2

11 Total expenditure	TE	45.6	45.3	45.2



Table A.4 General government debt developments 

% of GDP

2007	2008	2009	2010	2011

1. Gross debt 

44.7	42.1	39.6	38	36.2

2. Change in gross debt ratio

-2.8	-2.6	-2.5	-1.6	-1.8

Contributions to changes in gross debt

3. Primary balance



2.6	3.4	3.3	2.9	3.1

4. Interest expenditure	EDP D.41	2.2	2.2	2.1	2.1	2.0

5. Stock-flow adjustment

2.5	1.4	1.3	0.8	0.7

Of which :

- differences between cash and accruals

0.2	0.2	0.2	0.0	0.1

- Net accumulation of       financial assets

             

of which

- privatisation proceeds         



1.1

0.0	-0.5

0.0	-0.1

0.0	0.1

0.0	-0.1

0.0

- Valuation effect and other

-2.2	-1.9	-1.9	-1.1	-1.0









PM: implicit interest rate

4.1	4.1	4.1	4.1	4.1

6. Liquid financial assets

NA	NA	NA	NA	NA

7. Net financial debt (7=1-6)

NA	NA	NA	NA	NA

 

 

Tabel A.5 Cyclical developments

	ESA Code	2007	2008	2009	2010	2011

1. Real GDP growth

3.5	2 ¼	1 ¼	2	2

2. Net lending of general government 	EDP B.9	0.3	1.2	1.2	0.8	1.1

3. Interest expenditure	EDP D.41+

FISIM	2.2	2.2	2.1	2.1	2.0

4. One-off and other temporary measures	

	0.0	0.0	0.3	0.0	0.0

Potential GDP growth

3.5	2 ¼	1 ¼	2	2

Contributions to growth:

2.3	2.4	2.2	2.1	2.0

- Labour

0.6	0.6	0.6	0.4	0.4

- Capital

0.7	0.8	0.7	0.7	0.7

- Total factor productivity

1.0	0.9	0.9	1.0	0.9

6. Output gap

0.65	0.6	- 0.35	-0.45	-0.45

7. Cyclical budgetary component

-0.4	-0.3	-0.1	0.1	0.1

8. Cyclically-adjusted balance (2+7)

-0.1	0.4	0.7	0.8	1.1

9. Cyclically-adjusted primary balance (8+3)

2.1	2.6	2.8	2.9	3.1



Table A.6 Divergences from previous update

	ESA Code	2006	2007	2008	2009	2010

Real GDP growth (%)







Previous update

2.75	2 .5	1.75	1.75	NA

Current update

3.5	2.25	1.25	1.75	1.75

Difference

0.75	-0.25	-0.5	0	NA

General government net lending (% of GDP)	EDP B.9





	Previous update

-0.4	0.5	0.6	0.7	NA

Current update

0.3	1.2	1.2	0.8	1.1

Difference

0.7	0.7	0.6	0.1	NA

General government gross debt (% of GDP)







Previous update

46.8	45.0	43.0	41.2	NA

Current update

44.7	42.1	39.6	38	36.2

Difference

-2.1	-2.9	-3.4	-3.2	NA



Table A.7 Sustainability of public finances in the long term

% of GDP	2005	2010	2020	2030	2050

Total expenditure*	45.1	45.2	47.0	49.3	50.4

Of which:

- age related expenditure	20.5	20.6	22.4	24.7	25.8

Pension expenditures	7.4	7.6	9.0	10.7	11.2

Social security expenditures	1.7	1.5	1.5	1.5	1.5

Old-age and early pensions	4.8	5.2	6.7	8.6	9.4

Other pensions (disability, survivors)	2.6	2.4	2.3	2.1	1.9

Occupational pensions 	4.8	4.7	5.8	7.7	8.7

Health care	6.1	6.3	6.7	7.1	7.4

Long term care	0.5	0.5	0.5	0.8	1.1

Education expenditure	4.8	4.7	4.6	4.6	4.6

Other age-related expenditure	0	0	0	0	0

Interest rate expenditure	2.4	2.0	0.8	0.4	2.3

Total revenue*	45.9	45.7	45.6	45.3	44.8

Of which: property income	2.3	1.9	1.4	1.4	0.7

Of which: from pensions contributions	4.0	4.0	4.0	4.0	4.0

Pension reserve fund assets	140.8	159.0	196.1	230.5	241.9

Of which: consolidated public pension fund assets	0	0	0	0	0

Assumptions

Labour productivity growth	0.8	1.7	1.7	1.7	1.7

Real GDP growth	1.4	2.1	1.6	1.3	1.7

Participation rate males 

(aged 15 -64)	84.0	83.1	82.8	82.2	83.2

Participation rate females

(aged 15 – 64)	70.1	72.4	75.4	76.3	77.7

Total participation rates

(aged 15 – 64)	77.1	77.8	79.1	79.3	80.5

Unemployment rate	3.5	3.2	3.2	3.2	3.2

Population aged 65+ over total  population (%)	20.7	22.2	29.2	37.2	40.6

* These figures have not been published by the AWG. The method is
derived from the sustainability report 2006: the non-age-related
revenues and expenditures are kept constant at the 2005 level (taken
from tabel a.3.5 of Public Finance Report 2007). Age-related revenues
(property income, D4) and expenditures are then added to make up the
grand total.

Table A.8 External assumptions

	2007	2008	2009	2010	2011

Short-term interest rate (annual average)	4.3	5	4 ¾	4 ½	4 ½

Long-term interest rate

(annual average)	4.3	4 ½	5	4 ½	4 ½

USD/€ exchange rate (annual average)	1.37	1.55	1.57	1.45	1.45

Nominal effective exchange rate 

	3.9	5 ¾	½	1	1

World GDP growth

	4.9	3 ¾	3 ½	4 ¾	4 ¾

EU GDP growth 

	3.1	1 ¾	1 ½	2 ½	2 ½

World GDP growth excluding EU 	5.4	4 ½	4	5 ¼	5 ¼

Growth of relevant foreign markets*	6.3	3 ¼	3 ¾	6 ¼	6 ¼

World import volumes, excluding EU 	9.9	6 ½	6 ¾	6 ½	6 ½

Oil prices (Brent, USD per barrel)	72 ½	118	125	68	65

Source: CPB document 151, figures for world GDP growth, EU GDP growth,
and world GDP growth excluding EU are consistent with this document but
not provided there; Oil prices for 2010 and 2011 are the ministry of
Finance’s own conservative estimates.

* Taken to be equivalent to the Dutch “relevant wereldhandelsvolume”
(volume of relevant world trade).

 More details on the expenditure ceilings will be provided in Chapter 7.

 The total value of gas resources is defined as the present value of the
series of (expected) natural gas revenues from 2012 onwards. 

 Wierts, P. en Schotten, G. (2008), De Nederlandse gasbaten en het
begrotingsbeleid: theorie versus praktijk, DNB Occasional Studies,
Vol.6/No.5 (2008).

 CPB, “Macro Economische Verkenning 2009”, September 2008.

 CPB, “Actualisatie Economische Verkenning 2008-2011”, September
2007

 The total administrative burden for business as at 1 March 2007 amounts
to over €9.3 billion (1.7% of GDP). This is comparable to countries
such as Austria and the UK. 

 The results of the last CPB study into the costs of ageing can be found
in CPB (2006), Ageing and the sustainability of Dutch public finances. 

 Centraal Plan Bureau, Economische Verkenning 2008-2011, September 2006 

 Centraal Plan Bureau, Indicatie van effecten Financieel kader
2008-2011, February 2007 

 Please note that projecting the costs of an ageing population is done
on an irregular and low frequency basis. Economic outlooks with a
shorter horizon have a higher frequency but do not lead to updates of
AWG projections or CPB ageing projections per se. Therefore a
discrepancy may arise between the AWG and CPB assumptions in the first
years of the long term projections. Currently, the 2005 and 2010 figures
differ between medium and short term on the one hand and long term on
the other hand.

 Centraal Plan Bureau, Actualisatie Economische Verkenning (2008 –
2011), September 2007

 For an excellent overview of Dutch policy making since the early 19tth
century, see Frits Bos (2007) ”The Dutch fiscal framework: history,
current practice and the role of the CPB” CPB document 150

 The actual MTO of the Netherlands is a structural deficit between 0,5
and 1,0 % GDP, as mentioned in Chapter 3

 IMF(2007), “The Netherlands – Report on the Observance of Standards
and Codes – Data Transparency Module

 IMF(2006), “The Netherlands - Report on the Observance of Standards
and Codes – Fiscal Transparency Module”

 Please be aware that tables present rounded numbers. In some cases the
sums of lines may therefore deviate from the individual lines due to
rounding.

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Stability Programme of the Netherlands 











	November 2008 Update















Box 3.1 Recent government interventions in the financial markets and
their budgetary consequences

Recently, the Dutch government undertook several transactions in order
to keep the financial markets healthy and stable. These transactions
influence the budget balance, the gross debt ratio or both. This box
will give a brief overview of the transactions and their consequences on
the gross debt ratio and budget balance. In general terms there are
three types of transactions. First, there are direct financial
transactions, for instance the nationalisation of Fortis. These
transactions are not relevant for the budget balance, but are relevant
for the gross debt ratio. Second there are interest payments and
dividends arising from the financial transactions. These are relevant
for both the budget balance and the gross debt ratio. Finally the
government agreed on guarantee schemes, for instance the deposit
guarantee scheme, to ensure a stable financial system. Possible payments
arising from these guarantees will be relevant for the budget balance
and gross debt ratio.

Specifically, the following financial transactions related to the
financial crisis occurred in the months of October and November 2008. A
financial transaction of 16.8 billion euro / 2.8% GDP occurred due to
the nationalisation of Fortis Bank. The subsequent refinancing by the
State of the short term bridging loans of Fortis amounted up to 50
billion euro / 8.4% GDP. Furthermore, the capital position of two banks
(ING and SNS Reaal) and one insurance company (Aegon) have been
strengthened by the state. In return the state received securities. The
amounts involved are as follows: ING 10 billion euro  / 1.7% GDP,  Aegon
3 billion euro / 0.5% GDP and SNS Reaal 0,75 billion euro / 0,1% GDP.
Furthermore, The Netherlands will prefinance the obligations of the
Icelandic deposit guarantee system to deposit account holders of The
Netherlands. Exact amounts are not yet determined.

As of 23 October 2008 banks can make use of the 200 billion euro Credit
Guarantee Scheme for the issuance of medium term debt instruments by
banks. 

As a result of the financial crisis the government debt 2008 has been
adjusted upward by 13.5% GDP. The actual forecast of the 2008 government
debt in the Autumn Forecast shows a debt of approximately 57% GDP. It is
important to notice that measured in net terms the net debt / net worth
of the central government did not change because the additional debt is
matched by additional financial assets.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pillar 1

Pillar 2

Pillar 3

Pillar 4

Pillar 5

Pillar 6

Net additional public spending as set out 

in the  Budget Memorandum 2009

    % of net public spending that has already been allocated

Box 7.1 Net expenditure ceilings

Since 1994 a so-called trend-based budget policy is use in the
Netherlands. The key characteristics are the use of realistic economic
premises, a strict separation of revenues and expenditures, a fixed,
multi-annual expenditure framework and one-decision-making moment about
the budget. The multi-annual expenditure framework consists of
expenditure ceilings for the duration of the Cabinet period. 

The expenditure framework provides expenditure ‘ceilings’ within
which expenditure – and thus policy – must remain. The expenditure
framework is calculated in real terms. Every year the framework is
adjusted by the latest index for the development of prices and wages,
resulting in a nominal expenditure ‘ceiling’. The framework is
divided into three sectors: (1) expenditures of the ministries, (2)
social security expenditure and (3) health care spending. One specific
feature of the expenditure ceilings is that these ceilings are set in
terms of net expenditure: so-called non-tax revenues are included in the
expenditure ceiling and thus not included under the revenue side of the
budget. The non-tax revenues are included under the expenditure ceiling
because of their non-cyclical character. Furthermore, it creates an
incentive to the different departments to collect non-tax revenues.
Important non-tax-revenues are dividends from the central bank and state
corporations, interest revenues and various fines. The extent of the
non-tax revenue is rather limited.

It should be stressed that the gas revenues are not included as
non-tax-revenues under the expenditure ceilings. The gas revenues are
just as taxes and social premiums excluded from the  expenditure
ceilings. Windfalls and setbacks in gas revenues have – due to the
strict separation of expenditures and revenue – a direct effect on the
government debt. Automatic stabilizers fully operate at the revenue side
of the budget. 

Box 7.2 New fiscal rule for the effect of the financial crisis

In reaction to the financial crisis the Dutch government undertook
several transactions in the financial markets. However the Dutch fiscal
rules did not foresee these exceptional circumstances. It is not in the
spirit of the fiscal rules that these transactions influence the
expenditure ceiling (see box in chapter 3 for extra details). For this
reason the set of fiscal rules has been updated by the Cabinet in
November 2008 with specific rules for the treatment of expenditures. 

The new fiscal rule entails the fact that all costs and revenues
resulting from the interventions in the financial sector with the aim of
ensuring a stable financial system are not part of the expenditure
ceiling. Otherwise it would have been possible that measures due to the
financial crises would have created spending room under the expenditure
ceilings: as interest expenditure is according to the Dutch fiscal rules
are excluded from the expenditure ceilings, while dividend receipts are
included. This possible additional room for expenditure is now
foreclosed. Also, premiums and possible compensation payments resulting
from the guarantee of bank loans and the deposit guarantee scheme, are
not part of the expenditure ceiling. If as a consequence of these above
mentioned guarantee schemes the signal value is reached, no additional
measures will be taken. Of course the signal value will still be applied
during the regular budgetary process.