Netherlands to Reduce Taxes, Raise Defense Spending

The Dutch will keep their deficit under the European treaty limit while reducing taxes to help job creation.

The Dutch government promised to reduce taxes and overturn defense cuts on Tuesday as the small European nation’s economy is projected to grow 1.25 percent next year.

In a speech read out by the King Willem-Alexander in The Hague, marking the start of the parliamentary year, the government promised almost €1 billion in tax relief and announced plans to overhaul a complicated tax code to enable more job creation.

Undersecretary for tax policy Eric Wiebes later said comprehensive reforms, which should make it less costly for employers to hire workers, would have to wait until the economy fully rebounded. Simplifying the tax code could cost the treasury between €3 and €5 billion annually, necessitating cuts elsewhere.

“2015 will be difficult year,” Jeroen Dijsselbloem, the finance minister, said. “To cut €3 to €5 billion extra is something we deliberately chose not to do.”

Dijsselbloem’s Labor Party favors raising taxes on wealth to reduce inequality but Prime Minister Mark Rutte’s liberal party, of which Wiebes is a member, opposes more tax increases.

To reduce the government’s shortfall — which is expected to come in at 2.2 percent of gross domestic product next year, well below the 3 percent European treaty limit — the Dutch raised insurance and sales taxes as well as excise duties on alcohol, fuel, soft drinks and tobacco. A surtax on incomes over €150,000 was levied in both 2012 and 2013.

Public sector wages were frozen at the same time, depressing household consumption, while labor reforms, meant to protect low paid workers, raised costs for freelancers.

After years of continuous defense cuts, which saw the Netherlands sell all its remaining battle tanks to Finland last year, the 2015 budget adds €100 million to the armed forces.

Last year, the coalition agreed to buy up to sixty F-35 fighter jets.

Despite the improving economic prospects, the ruling parties remain unpopular. The latest TNS NIPO poll gives the liberals 26 seats, compared to 41 in parliament. Labor gets only eleven seats while it won 38 in the 2012 election. The nationalist Freedom Party and the liberal Democrats both get far more support.

Yet the Democrats, along with two smaller Christian parties, support the government’s spending plans in the upper chamber of parliament where Rutte’s coalition lacks a majority of its own.