The Labor and liberal parties in the Netherlands are believed to be close to reaching a coalition agreement six weeks after parliamentary elections in the country.

Incumbent prime minister Mark Rutte’s liberals won the election in September, but Labor came in a close second, making it nigh impossible for either party to find a right- or left-wing majority with third parties.

The two competed in the election, however, and campaigned on radically different economic, fiscal and health-care policies.

Cuts

The Labor Party fulminated against Rutte’s spending cuts and argued that taxes on the wealthy ought to be raised to keep the Netherlands’ deficit under 3 percent of gross domestic product, the European maximum.

Spending will likely need to be reduced between €15 and €20 billion in the next government, including a €1 billion cut to developmental aid, which Labor previously criticized.

Tax rates are slated to be cut as well. The top income rate of 52 percent could come down to 49 percent in the long term while the medium rate of 42 percent is expected to be reduced to 38 percent by 2014.

Broken promise

The liberals probably insisted on tax relief in return for reducing the popular home mortgage interest deduction from 52 to 38 percent over a period of 28 years.

They had vowed to defend the deduction before the election. Freedom Party leader Geert Wilders was quick to criticize Rutte for breaking this promise.

Polls do not suggest right-wing voters who defected from his to the ruling party are ready to come back, though.

Liberalizations

Labor, on the other hand, is bleeding support to the far-left Socialists. Voters are critical of its willingness to enter into a coalition with the right. One poll has the party down seven seats in parliament.

Left-wing voters are particularly upset about an expected liberalization of the labor market, which would make it easier for companies to lay off workers.

It isn’t clear if Labor has also surrendered its opposition to further health-care liberalizations. Party leader Diederik Samsom argued against competition between hospitals during the election and his platform would have made it impossible for health insurers to compete by linking premiums to incomes.

Foreign policy

Despite Labor’s hesitation, the Netherlands is likely to remain a participant in the F-35 Joint Strike Fighter development program, especially after the country’s Court of Audits reported on Wednesday that leaving the project would be more expensive than staying in.

It could also cost the Dutch aviation industry thousands of jobs.

The Netherlands could become an easier partner in Europe. Labor is less skeptical of fiscal integration in the eurozone and in favor of extending Greece’s deadline for achieving economic and public-sector reforms. But as prime minister, Rutte will still be inclined to ally with hawkish Finland and Germany, so possible changes in foreign policy shouldn’t be overestimated.

Cabinet

Labor is expected to provide the finance and foreign minister in the new government. The liberals’ Uri Rosenthal would therefore not return in the latter position, but most of the party’s other incumbent cabinet ministers could remain in their posts.

Amsterdam city councilor Lodewijk Asscher, a rising star in the Labor Party, is rumored to become vice premier. Samsom would chair the party’s delegation in parliament.