Dutch Consider More Austerity as Deficit Rises

The government must cut deeper to keep its shortfall under the European treaty limit.

The Netherlands’ Bureau for Economic Policy Analysis raised its deficit projection for next year from 3.7 to 3.9 percent on Wednesday, igniting a storm of criticism from opposition politicians who urged the government to abandon its austerity program.

Geert Wilders, leader of the nationalist Freedom Party, now the largest in the polls, described the forecast as “catastrophic” and accused Prime Minister Mark Rutte of “destroying jobs.”

Unemployment, at 8.8 percent, has more than doubled since before the financial crisis of 2008-2009. Corporate bankruptcies are also higher than they were at the time.

Christian Democrat leader Sybrand van Haersma Buma, whose party was in coalition with Rutte’s liberals until November of last year, similarly lamented the lack of “structural” economic recovery as well as tax increases and income redistribution schemes that are designed by Rutte’s current coalition partner, Labor.

The ruling parties had hoped to draw the Christian Democrats into an informal coalition because they lack a majority of their own in the upper chamber of parliament. Buma has ruled that out when government policies affect middle incomes hardest and undermine both business and consumer confidence.

The coalition is due to announce a fiscal plan for 2014 that respect the European Union’s 3 percent deficit limit. It is reportedly contemplating between €6 and €8 billion worth of austerity measures. The previous austerity budget contained some cuts to the civil service and defense but the majority of deficit reduction was achieved through tax hikes. Both the Bureau for Economic Policy Analysis and the nation’s central bank have warned that higher taxes depressed consumption while driving up inflation, the highest in the eurozone.

The Netherlands, otherwise seen as an economically competitive and fiscally sound member of the eurozone, is 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 Bureau for Economic Policy Analysis expects 1.25 percent negative growth for the whole of 2013 and growth under 1 percent next year.

Labor Party finance minister Jeroen Dijsselbloem acknowledged in an interview on Wednesday that “structural problems” in the economy prevented the Netherlands from recovering in pace with its neighbors. Yet the government has done little to remedy such impediments as generous unemployment compensation, which is partly financed by businesses, and rigid layoff laws. A “social accord” that was reached between employers’ organizations, the government and trade unions earlier this year did little to liberalize the labor market and even that agreement is in doubt. The unions have threatened to pull out if more public spending cuts are announced.