Dutch state short 29 billion euros

According to new government figures, the next cabinet will have to undertake massive cutbacks. But not as massive as first feared.

An analysis by a Dutch government agency has shown that the next Dutch cabinet will need to cut 29 billion euros in spending over its four year term. This is six billion euros less than the sitting cabinet had predicted.

The cutbacks are needed to pay for the growing number of elderly, the economic crisis and rising costs of healthcare, the Dutch Bureau for Economic Policy Analysis (CPB) announced on Tuesday. The 165 employees of the CPB have been responsible for predicting economic and financial matters and the ramifications of government policy since the Bureau was founded in 1945.

Rising life expectancy will prove particularly costly, leading “government debt to explode,” CPB managing director, Coen Teulings said. Because the growing cost of healthcare is outpacing the growth of the economy, the CPB assumes that citizens will foot the bill entailed by the difference.

Annual health care deductibles paid by health insurance policy holders will rise from 165 euros to 775 euros, the CPB estimates. Teulings pointed out that the government could raise insurance payments or reduce costs to make up the difference.

Teulings declined to estimate the pace at which future cabinets would have to proceed with cutbacks, but he proved milder than the sitting cabinet when it came to short-term cutbacks. The current government had suggested a 35 billion euro reduction in spending would be required, in addition to raising the age of eligibility for government pensions by two years. “It is not entirely clear where that number comes from,” Teulings said on Tuesday. “Now we have a carefully established figure.”

According to Teulings, “economic theory is anything but unequivocal,” on how best to deal with the 29 billion euro deficit. “Everything you do today doesn’t have to be done tomorrow. You have to pay some day. Postponing cutbacks for the duration of one cabinet is not a big drama.”

But the longer it takes to eliminate the deficit, the higher the bill future generations will pay, Teulings warned.

The Dutch economy has “lost” five percent of its total volume due to the crisis, a loss which can hardly be compensated by future growth. GDP estimates are now lower than they were for past cabinets.

In the short term, the crisis will have limited effects on the labour market and purchasing power. The number of unemployed will grow to half a million people over 2010 and 2011, amounting to 6.5 percent of the labour force. Purchasing power will rise by a quarter of a percent over the next cabinet’s term.