To the chagrin of the nation’s right-wing press, the Netherlands’ centrist government on Thursday announced that it will postpone €4.3 billion in deficit reduction measures planned for 2014 as part of a deal with employers’ associations and trade unions.
“We are taking a breather,” Prime Minister Mark Rutte, who also leads the Northern European country’s ruling liberal party, said during a news conference in The Hague. “There should be a recovery of confidence first, before we decide if additional measures are required.”
The government, which is also backed by the left-wing Labor Party, will determine in September whether more austerity is needed to comply with the European Union’s 3 percent deficit target next fiscal year.
In February, the coalition agreed not to make hasty policy changes to bring down the deficit even if it is expected to come in at 3.3 percent of gross domestic product this year — in defiance of European fiscal treaty and therefore an embarrassment for a country that has strongly insisted on deficit reduction in the south of Europe where governments coped with much higher shortfalls in recent years.
Rutte was heavily criticized by conservatives at the time because his business-friendly party had campaigned on fiscal consolidation and tax relief in September’s election. The Christian Democrats and nationalist Freedom Party, with whom he governed before, both accused the premier of breaking an election promise when he agreed to reform a popular home mortgage interest deduction policy and link health insurance premiums to incomes. The latter proposal was quickly scrapped when Rutte’s own liberal party threatened to revolt.
According to the right-wing De Telegraaf newspaper, the government has again “caved” in its accord with employers and trade unions which reverses many of its original labor market reform proposals. Plans to cut the duration of jobless benefits from three to two years are delayed until 2016 as is a proposal to make it easier for companies to fire and hire workers. “Instead of the promised vigor, Prime Minister Rutte is wielding a snowplow” which he famously accused his former Labor Party rival of using in avoiding unpopular reforms.
The liberal weekly Elsevier similarly laments the lack of decisive policy. “Rutte’s cabinet doesn’t cut spending, doesn’t reform, rather raises taxes, delays and defers decisions,” writes its political editor Syp Wynia. “The prime ministers looks powerless.”
The government hopes that the Dutch economy will grow again next year after sliding into recession in the second half of 2012, allowing it to avoid more austerity. But if it doesn’t, Wynia warns, “there are only two options: either public finances are left to run their course,” and the Netherlands will miss its 3 percent deficit target again, “or taxes will be raised, causing more economic gloom.”
Consumer sentiment is already at an historic low while unemployment has been rising for almost two years, now at 7.7 percent or more than 600,000 workers in a country of nearly seventeen million.