Dutch Deficit Rises, Coalition Seeks Opposition Support

The government needs opposition support to get its budget through the Senate.

The Dutch government is expected to miss its fiscal target this year and seeks support from opposition parties in order to enact a budget that further reduces the nation’s deficit.

Finance minister Jeroen Dijsselbloem started talks with other parties on Wednesday whose support he needs to get a budget through the upper chamber of parliament.

Dijsselbloem’s Labor Party formed a coalition with Prime Minister Mark Rutte’s liberals after the two won a comfortable majority in the lower chamber of parliament in September. In the Senate, which was elected a year earlier, they still need opposition votes to enact legislation.

Last week, Dutch media reported that the ruling parties were trying to pull the Christian Democrats, who are the third largest party in the upper chamber but lost half of their seats in the lower house elections in the fall, into the coalition. However, party leader Sybrand van Haersma Buma reiterated on Wednesday that he would not support a budget if it included further tax increases.

Rutte’s first government with the Christian Democrats collapsed last year when nationalist Freedom Party leader Geert Wilders refused to support deeper cuts. In coalition with Labor, Rutte promises to eventually reduce middle income tax rates but has already limited a popular home mortgage interest deduction policy as well as student aid. High income earners also have to pay more into their health-care costs starting this year.

The Christian Democrats have been critical of these austerity measures as has Wilders who refuses to back more spending cuts altogether. If the ruling parties are to find a Senate majority for their budget proposal, it will likely have to come from smaller Christian and Green parties as well as the liberal Democrats who have been the most sympathetic to the government’s program.

Dijsselbloem refused to say on Wednesday if the government will bother to adjust this year’s spending plan or concentrate its efforts on next year’s. His party leader Diederik Samsom suggested on Tuesday that the economic contraction in the country might qualify as an “extraordinary circumstance” under which it can qualify for an exemption from the European Union’s budget rules and postpone the 3 percent deficit target until next year.

Halbe Zijlstra, who leads the liberal members of parliament, similarly told de Volkskrant newspaper that he would not welcome deeper cuts. “What is more important?” he wondered. “That we don’t make the 3 percent in 2013? Or that we do make the norm but deliver a structural blow to the economy?”

As a result of lackluster growth, the deficit is expected to come in at 3.3 percent of gross domestic product this year whereas the government previously estimated that the shortfall would be 2.7 percent, just below the 3 percent maximum that is enshrined in European fiscal law.

A failure to comply with the European Union’s budget rules would be especially embarrassing for a country that has strongly insisted on fiscal consolidation in the south of Europe where governments coped with much higher deficits in recent years.

In order to reduce the shortfall by €4 to €5 billion, the government is reportedly considering to freeze tax rates which would yield some €1 billion in additional revenue as well as pay for public-sector workers.