Normalising public finances in the Netherlands OECD meeting of Senior Budget Officials Maaike Adema
Contents Impact of the crisis Dutch response to the crisis Fundamental policy review Implementation challenges
Revised economic indicators for 2009 (%) sep-08 dec-08 feb-09 jun-09 sep-09 Economic growth 1¼ -1¼ -3½ - 4¾ - 4¾ EMU-balance 1,2-1,2-2,8-4,1-4,8 EMU-debt 40 59 60 60 Unemployment 4½ 4½ 5½ 5½ 5¼ 3
Economic growth (% GDP) 4 3 2 1 0-1 -2-3 -4-5 -6 2007 2008 2009 2010 4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EMU balance (% GDP) 3,0 2,0 1,0 0,0-1,0-2,0-3,0-4,0-5,0-6,0-7,0 5
EMU debt (% GDP) 80,0 75,0 70,0 65,0 60,0 55,0 50,0 45,0 40,0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 6
Decomposition of debt increase 70% 60% 50% 40% 30% 20% Other Automatic stabilisation Stimulus package Interventions financial sector EMU-debt BM 2009 10% 0% 2008 2009 2010-10% 7
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Unemployment 11,0 10,0 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 8
Dutch response: addendum to coalition agreement Short term 2009-2010: Stabilising the economy Interventions in financial sector (13.5% GDP); Stimulus package (1% GDP); Automatic stabilisation (6.2% GDP). Medium term from 2011: Restoring public finances Start consolidation in 2011 conditional on economic recovery; Stability and Growth Pact; Trade-off Deficit Reduction Act; Fundamental policy reviews. Long term: Improving sustainability Raising the retirement age to 67 (0.7% GDP); Improving efficiency in health care (0.4% GDP); Higher taxes on houses > 1 million (0.2% GDP). 9
2005 2000 1995 1990 1985 1980 2005 2000 1995 1990 1985 1980 2005 2000 1995 1990 1985 1980 History: growth paths after financial crisis Finland Zw eden Japan 275 255 235 215 195 175 155 135 115 95 75 275 255 235 215 195 175 155 135 115 95 75 275 255 235 215 195 175 155 135 115 95 75 10
Scenario s for recovery (EMU-deficit) 2% 0% -2% -4% -6% -8% -10% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 11
Medium term: restoring public finances Structural expenditure cuts starting from 2011» Conditional on economic recovery Stability and Growth Pact» Excessive Deficit Procedure» Recommendation by Council: deficit < 3% in 2013 Deficit Reduction Act» Based on SGP requirements» Yearly improvement of the structural deficit by at least 0.5% GDP until MTO is met Fundamental policy reviews 12
Fundamental policy reviews Official exercise by order of the cabinet Based on similar exercise in 80 s and existing interdepartmental policy review instrument Subjects chosen by the cabinet (no pet subjects) Comprehensive (including tax expenditures) Gain insight in different cutback options and their effects Provide ample possibilities (aim 6% of GDP) (politicians must be allowed to choose) Political decisionmaking in June/July 2010 13
Rules of play Expert studygroups (inside and outside the public sector) Chairperson not in charge of policymaking in the area to be reviewed Compulsory 20% reduction option No opinion on desirability No political interventions Non-veto Delivery May/June 2010 14
Subjects 1. Energy and climate change 2. Environment 3. Transport and watermanagement 4. Housing 5. Productivity in education 6. Higher education 7. Child benefits 8. Innovation and applied research 9. Income support 10. Unemployment benefits 11. Cure 12. Care 13. Development aid 14. Immigration, integration and asylum 15. Public safety and terrorism 16. Tax administration 17. Administration of income support 18. Public administration 19. Operational management 20. (Defence) 15
Implementation challenges: political commitment Is the momentum still there? General elections in May 2011 Economic recovery: Medium Term Outlook 2010 Majority of the public does not experience the crisis (yet?) 16
Thank you! m.adema@minfin.nl