Top economists disappointed by 'boring' budget

Top economists are saying the Dutch government is overestimating the long-term effect of the crisis, while at the same time shying away from taking tough measures.

Scaremongering, indecisive, spineless... The verdict of some of the Netherlands' most eminent economists about the 2010 budget that was presented on Tuesday is as diverse as it is merciless. The Balkenende government, many experts are saying, has painted a needlessly gloomy picture of the long-term effects of the economic crisis while putting off any serious reforms until the next government takes over.

"If you create a panic in order to slaughter sacred cows then it can be beneficial, but I have seen no proof of that," said Harry Verbon, a professor of public finance at Tilburg University.

"This is the most boring budget I have ever seen," said Bas Jacobs of Rotterdam's Erasmus University. "The government is minding the store, nothing more and nothing less."

Buying time

Sweder van Wijnbergen, professor of economics at the University of Amsterdam, wrote in Tuesday's NRC Handelsblad: "The government is panicking and doesn't know what to do next, so they buy time by hiding behind commissions and spinning tales about 2015." The budget, Van Wijnbergen said, is full of "unspecified doom scenarios and unrealistic goals of budget cuts".

Verbon agrees with Van Wijnbergen that the government is overestimating the long-term effect of the crisis on the public finances. "The budget deficit will be above 6 percent next year. The crisis will result in, at worst, a 200 billion euros increase of the public debt. But the budget deficit due to the crisis will have evaporated in four years time. After that you're just paying off the extra debt."

Verbon has calculated that the public debt as a result of the crisis amounts to 100 euros per person per year and that is over an extended period. It is not something that people should lose sleep over, he says.

"The Dutch economy is fundamentally sound. When the crisis is over the economy will grow again. Even the effect of the crisis on government financing is not all that bad. It's just like coming out of a war: you know you're going to have some extra debt on your hands."

Mind the sustainability gap

Roel Beetsma of the University of Amsterdam also believes that the deficit won't be as bad as the government is making it out to be once the economy picks up again. But he does see an important task ahead for the government in "narrowing the sustainability gap".

The sustainability gap, which takes into account the effect of an ageing population on the sustainability of social security, is actually higher than the government's projected budget deficit. If the sustainability gap is taken into consideration future governments would have to make even more budget cuts.

But Verbon called the sustainability gap "nonsense" and not worthy of much consideration.

Bas Jacobs of Rotterdam's Erasmus University sees mostly missed opportunities in the 2010 budget. The Netherlands' Bureau for Economic Policy Analysis estimates that the number of unemployed will rise to 615,000 next year. That should make lowering the thresholds to the labour market a priority, he said.

Jacobs: "The cost of labour has risen more than inflation in the middle of the worst recession in decades. That's a recipe for long-term unemployment."

The government has also failed to use the momentum of the crisis to push through major budget cuts, and by postponing them is only contributing to economic security, he said.

Jacobs: "[Finance minister Wouter] Bos' slogan should have been: 'Pain is gain.'"