Yes, the energy price ceiling cuts a hole in the budget. But whether we can say how big? No idea. It could well cost 23 billion. But it could also be 10 billion. Or maybe 40 billion. We do not yet know how we will pay for that. Economize? Perhaps. Extra government debt? It is also possible, we have yet to see it, but would you still like to sign?
The message that Minister of Finance Sigrid Kaag (D66) had for the House of Representatives this week is not an easy one. On Tuesday, her colleague Rob Jetten (D66), Minister of Energy and Climate, presented the price ceiling with which the cabinet wants to reduce the energy bill of all Dutch citizens. At the insistence of almost the entire House of Representatives, the detailed result is even more generous than the ceiling that Jetten presented for the first time on Budget Day. Large-scale electricity consumers – those who live in larger homes or have a heat pump, for example – benefit from this.
On Wednesday and Thursday it was up to Kaag to sell the difficult part of the solution to the House: the cabinet has no idea yet how much the ceiling will cost, and where exactly the money in the already uncertain budget will come from. She was not entirely happy with it herself, she said during the General Financial Reflections, the financial counterpart of the Political Reflections after Budget Day. “This is not how I imagined my start as finance minister.”
Erratic energy prices
It is the paradox of the government’s policy in this energy crisis: parliament participates in full control – and yet it does not. The capriciousness of the world economy and energy prices give opposition parties the opportunity to think along and co-government. After all, the coalition agreement does not prescribe how the cabinet should regulate the raging inflation and the uncertain energy supply. Everything is ad hoc. This is how the price ceiling was created: a proposal from GroenLinks and the PvdA, embraced by the coalition.
That same capriciousness plays tricks on the opposition when it comes to the process: looking for money to pay for all those hastily forged plans. This was already apparent on Budget Day: the letter to parliament about the price ceiling was still being written while the Speech from the Throne had already started, the cabinet could only estimate how much it would cost and came to 15 billion euros. The estimate is still uncertain, but slightly more concrete: 23.5 billion euros. This is only offset by a saving of 5 billion euros, by canceling a previously promised discount on the energy tax. The rest is unsecured.
It is the paradox of government policy in this energy crisis: parliament is fully co-governing – and yet not
The exact amount can bounce both ways. If prices go up again, the government must subsidize energy suppliers with more money, so that they can offer electricity and gas to Dutch households at the agreed price. If gas prices equal the peak in August, the cost will be more than 40 billion. If gas prices continue to fall, as they are now, the price tag of the ceiling could also drop to 10 billion.
As uncertain as the costs of the budget are, revenues next year are also uncertain, according to Kaag. And there is room for windfalls. The cabinet wants to tax energy producers more heavily through the Mining Act and work is underway in Europe on an even greater solidarity levy for energy companies that are now making large profits from generating electricity. Moreover, the high gas prices on the world market mean that Dutch gas is also sold at a high price, which in turn generates billions in extra tax revenue – the gas revenues.
With so much uncertainty, Kaag argues, it is pointless to cut spending or raise taxes now. In her view, something can only be said about this in the Spring Memorandum, in the spring of 2023. Then it is better to estimate how much the ceiling will cost and what additional income will come in.
For that reason, the coalition parties may leave some question marks on the budget. It is simply too early now, said VVD MP Eelco Heinen. “So I also want to avoid here that we ask the minister to make a weather forecast in the sense of: should I wear shorts or long trousers in April? Sometimes we just don’t know.”
“We have asked the cabinet, all together: take that risk away from households,” D66 member Steven van Weyenberg said admonishing the opposition. “I therefore find it quite complicated to complain to each other that there is indeed a risk in the budget.”
Kaag did not want to rule out budget cuts ‘principally in theory’. But, she added: “They are not my first reaction.” For the time being, the extra costs seem to run into the national debt, at least on paper.
After corona everything is suddenly possible
However, that does not remove the doubt. On Budget Day, the Central Planning Bureau (CPB) and the Council of State already complained about the “hasty process” with which the Budget Memorandum was drawn up and the ease with which the cabinet conjured up large expenditures.
That sound could be heard again these weeks from the opposition benches. “She asks us for a blank check,” said SP MP Mahir Alkaya. Pieter Omtzigt spoke of a “sword of Damocles” as long as it is not clear whether families who now benefit from the price ceiling will pay for it later through higher taxes. The PvdA and GroenLinks, the initiators of the price cap, are starting to hesitate if there is a cutback in health care. The SGP wants to prevent that the ceiling is simply financed by letting the national debt rise.
The flexible attitude makes the cabinet more agile in times of crisis, but has also led to a budget that is constantly being stretched
The MPs did not receive a clear answer. And so they are in doubt: they are in favor of the ceiling, but are not convinced to support the cabinet until they know where the money for that ceiling comes from: Schrödinger’s budget.
It is a sign of the parliamentary inconvenience that has actually existed around the state treasury for more than two and a half years. Since 2019, and especially since the corona crisis, there has been an increasing tendency to deviate from old fiscal rules. Not every revenue windfall goes towards paying off the national debt. Not only during Prinsjesdag, but throughout the year, extra billions of expenditure are announced. Plans are promised before money is found. Everything is possible, it seems.
This flexible attitude makes the cabinet more agile in times of crisis, but has also resulted in a budget that is constantly being stretched. “Fiscal policy is suffering from long covid,” CPB director Pieter Hasekamp wrote in a column in the newspaper on Friday FD. The disruption of corona continues to fester, according to Hasekamp, unless order is restored to the budget.
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The discomfort in the House about the hastily designed emergency measures is not limited to the size of the expenditure. For example, several MPs wondered how the cabinet ensures that energy suppliers are still encouraged to purchase at favorable prices. After all, the cabinet will soon add every cent above the ceiling to keep the price low for the customer, regardless of the market price.
There is also uncertainty about the profits that such companies make. Omtzigt, SP member Alkaya and PVV MP Tony van Dijck all mentioned energy supplier Vattenfall, which is wholly owned by the Swedish state and which has also paid dividends in recent years. “If we’re not careful, we’re actually adding to the Swedish budget here,” says Van Dijck.
These are questions that the House will have to consider more often. Energy prices are likely to remain above average after 2023, analysts expect. Partly because of this, the ‘return of the activist state’ has become a fait accompli, columnist Martin Sandbu wrote this week in the Financial Times.
Kaag hopes that she will find the House on her side – or at least part of it. She will have to: the coalition does not have a majority in the Senate.
A version of this article also appeared in the newspaper of October 8, 2022