Dutch to Miss Deficit Target Despite More Austerity

More spending cuts and tax increases will more allow the Netherlands to keep its deficit under 3 percent.

Dutch finance minister Jeroen Dijsselbloem answers a reporters' question in Brussels, February 11
Dutch finance minister Jeroen Dijsselbloem answers a reporters’ question in Brussels, February 11 (The Council of the European Union)

Dutch Labor Party leaders on Tuesday said the country would deliberately miss Europe’s 3 percent deficit target next year as the government announced €6 billion more in spending cuts and tax increases.

Labor had been critical of the deficit limit that is enshrined in the eurozone’s fiscal treaty but Prime Minister Mark Rutte’s liberals, who formed a coalition with the party late last year, insisted on deeper cuts to meet the goal, if not to prevent the national debt from rising further than to preserve the country’s credibility in the rest of Europe.

Rutte’s previous government was seen as one of the most hawkish in the European currency union when indebted peripheral member states requested leniency to bring their deficits below the treaty maximum. The European Commission earlier this year, however, gave both France and Spain more time as well to reduce their shortfalls to below 3 percent of gross domestic product.

Among the austerity measures announced on behalf of the government by the Netherlands’ King Willem-Alexander on Tuesday were higher taxes on alcohol and diesel and a surtax on incomes above €150,000 to raise €500 million more in revenue. Most civil servants’ pay is to remain frozen for another year while departments’ budgets will not rise with inflation, providing a total of €1.3 in savings.

The Netherlands, otherwise seen as an economically competitive and fiscally sound member of the eurozone, is now among the worst performers in the currency union. Its economy contracted .2 percent in the last quarter while the eurozone’s as a whole grew .3 percent. The nation’s Bureau for Economic Policy Analysis expects 1.25 percent negative growth for the whole of 2013 and growth under 1 percent next year.

With unemployment as 8.8 percent, more than double it was before the financial crisis, and corporate bankruptcies rising, most opposition parties call on the government to change policy. But whereas the far-left Socialists, Labor’s main electoral rivals, criticize social welfare cuts — even as total welfare spending continues to rise — the Christian Democrats and nationalist Freedom Party, who are vying for the same right-wing voters as Rutte’s liberals, strongly oppose the tax increases which they believe have undermined the country’s economic recovery.

The most recent opinion survey gives the ruling parties just thirty seats in the lower chamber of parliament where they currently hold 79. The Freedom Party, which is also highly Euroskeptical, would more than double its seats.

In the upper chamber, the coalition does not have a majority and would have to rely on opposition support to enact legislation.

Tuesday’s budget also included almost €350 worth of additional defense cuts but did reserve €4 billion in long-term spending to replace the Netherlands’ aging fleet of F-16 fighter jets with 37 F-35 Joint Strike Fighters.