The Amsterdam Herald

Cheap, flimsy and badly put together: Economists' verdict on Dutch government's rescue package

Leading economists are warning that the hastily struck deal to bring the Netherlands’ budget deficit back within European limits lacks structure and could weaken the country’s ability to recover from recession.

‘The five parties ought to have focused less on cleaning up the public finances in the short term and more on structural weaknesses in the economy and the budget,’ two public finance specialists told the economic journal ESB.

‘It’s a political success, but not an unmitigated financial success,’ concluded Lans Bovenberg, senior lecturer at Tilburg University and Bas Jacobs, of Rotterdam’s Erasmus University.

A more scathing verdict came from Rick van der Ploeg, economics lecturer at Oxford and Amsterdam, in Vrij Nederland: ‘Too late, too flimsy and it squeezes the economy too hard,’ he said.

The five-party coalition, headed by finance minister Jan Kees de Jager (pictured), came together to draw up the so-called ‘deal in the corridors’ (wandelgangenakkord) after the fall of Mark Rutte’s centre-right minority government last month.

The measures include an increase in the upper rate of the purchase tax (btw) from 19 to 21 per cent, a freeze on public sector pay, higher personal healthcare payments and a gradual increase in the pension age to 66.

Mortgage interest relief is also being restricted as the government tries to reduce its exposure to the high debt burden accumulated by Dutch households over the last decade.

Bovenberg, who is politically aligned to the centre-right Christian Democrat party, and Jacobs are most critical of the decision to raise the btw tax, saying it will hit households on the lowest incomes, such as the unemployed and pensioners, hardest.

They also claim the attempt to reform the mortgage arrangements is too complicated and fails to tackle the core problem, namely the high debts run up by households on interest-only mortgages. It also makes it harder for first-time buyers to enter the market.

‘It will maximise the fall in house prices while minimising the amount raised for the public purse,’ they said. ‘This is a sticking-plaster solution, which can be more damaging than doing nothing.’

Van der Ploeg is particularly dismissive of the higher btw tax, which is designed to save €4 billion of the €16.2 billion which the government needs to find to bring its budget deficit back within the 3 per cent threshold in 2013.

He said: ‘An enormous share of the total sum comes from this old-fashioned squeeze on consumer demand.’

His concerns are shared by Ewald Engelen, a lecturer in fiscal geography at Amsterdam University, who defines himself as a left-liberal economist.

He told Vrij Nederland: ‘Nearly 50 per cent of the package comes from increasing the tax burden.

‘That’s not reform or savings, it’s just dipping into voters’ pockets. The rise in btw is dreadful. The weakest, cheapest and most ill-fated thing they could have done.’

Source: De Volkskrant: 'Wandelgangenakkoord gaat te veel over lastenverzwaring'

Vrij Nederland: 'De Jager is geen groot licht'

Photo by Roel Wijnants

Read previous story: Higher taxes, wage freezes and an extra year until retirement: the cost of saving the Dutch economy