Dutch Labor, Liberal Parties Close to Coalition Agreement

Prime Minister Mark Rutte of the Netherlands in The Hague, September 24

Prime Minister Mark Rutte of the Netherlands in The Hague, September 24 (Roel Wijnants)

The Labor and liberal parties in the Netherlands are believed to be close to reaching a coalition agreement six weeks after parliamentary elections took place in the country.

Incumbent prime minister Mark Rutte’s liberals won September’s election but Labor come in a close second, making it nigh impossible for either party to find a right or left-wing majority with third parties.

The two fiercely criticized one another before the election, however, and campaigned on very different economic, fiscal and health care policies. The Labor Party fulminated against Rutte’s deep spending cuts and argued that taxes on the wealthy should be raised instead to keep the deficit under 3 percent of gross domestic product to comply with European fiscal treaty.

Spending will likely be reduced between €15 and €20 billion nevertheless, including a €1 billion cut in developmental aid which Labor previously criticized, while tax rates are slated to be cut as well. The top income rate of 52 percent could come down to 49 percent in the long term while the medium rate of 42 percent is expected to be reduced to 38 percent by 2014.

The liberals probably insisted on tax relief in return for reducing a popular home mortgage interest deduction from 52 to 38 percent over a period of twenty-eight years. They had vowed to defend the deduction before the election and Freedom Party leader Geert Wilders was quick to criticize the premier for breaking his promise. Polls do not suggest that right-wing voters who defected from his to the ruling party are quite ready to come back, however.

Labor, on the other hand, is bleeding support to the far-left Socialists as voters are critical of its willingness to enter a coalition with the right. One poll has the party down seven seats in parliament.

Left-wing voters are particularly upset about the expected labor market liberalization which will make it easier for companies to lay off workers. It isn’t clear yet whether Labor has also surrendered its opposition to further health care liberalization. Party leader Diederik Samsom argued against competition between hospitals during the election campaign and his platform would have made it impossible for health insurers to compete by linking premiums to incomes.

Despite Labor’s hesitation, the Netherlands is likely to remain a participant in the F-35 Joint Strike Fighter development program, especially after the country’s Court of Audits reported on Wednesday that leaving the project will be more expensive for the government than staying in. It would also cost the Dutch aviation industry several thousands of jobs.

Dutch European policy could be more cooperative than it has been in previous years since Labor is less skeptical of fiscal integration in the eurozone and in favor of extending Greece’s deadline for achieving economic and public-sector reforms. As prime minister, Rutte will still be inclined to ally with the Finns and the Germans so possible changes in foreign policy shouldn’t be overestimated.

Labor is expected to deliver the finance and foreign ministers in the new government. The liberals’ Uri Rosenthal will therefore not return in the latter position but most of the party’s other incumbent cabinet ministers could remain in their posts. Amsterdam city councilor Lodewijk Asscher, a rising star in the Labor Party, is rumored to become vice premier. Samsom will chair the party’s delegation in parliament.