They are called ‘hunger stones’, the giant stones that appear on the river surface this summer due to the low water levels in Central Europe. They were carved centuries ago, not only to remember a dry year, but also to warn of further suffering: crop failure, famine. ‘If you see me, cry,’ is written on such a stone along the Elbe bank.
These are days in which the economic reports also read as tidings of doom. Energy suppliers are finding that a growing number of customers are unable to pay the bills. Rising supermarket prices cost an average family hundreds of euros extra per year. Inflation was above 10 percent in July, the first since September 1975.
And here too, the misery is not over yet. The consequences are already being felt by many: at the pump, in the shopping basket and for those who have concluded a new or variable energy contract. But the worst is yet to come. Many Dutch people still have to renew their energy contracts and the higher prices are seeping through in more and more places.
This makes the assignment that Rutte IV’s coalition will be focusing on over the next two weeks important and difficult. This week the four party leaders of VVD, CDA, D66 and ChristenUnie met for the first time. They will often do this until August 26, when they must have made their decisions about the budget for 2023, which will be published on Budget Day.
Will it be a quick emergency – or will the system be overhauled?
The belt does not have to be tightened so tightly and there is room for redistribution
Until now, the government has always resorted to temporary measures to support the purchasing power of millions of Dutch people. This was partly out of necessity: the most drastic changes can only be arranged on an annual basis, as of 1 January. Instead, the cabinet lowered the VAT on energy and the petrol excise duties and introduced an energy surcharge for low-income earners.
But the need remains high, even after the 6.5 billion euros that the cabinet has already earmarked for it. Dutch households are in the top three in Europe when looking at who has to take the hardest blows in their purchasing power by energy prices, economists from the International Monetary Fund (IMF) have calculated. This also affects more and more middle-income earners.
So something has to be done. A new temporary reduction in the energy tax or VAT on energy consumption are ideas on the table. But what if the problems persist? That is no longer a doomsday: the general expectation among banks and economists is that the energy bill for citizens and businesses will also be very high in 2023 and 2024.
Even a plot twist, such as an unexpected end to the war in Ukraine and an end to the boycott of Russian oil and gas, can do little to change that. Because the Russian invasion exacerbated an energy crisis that had been fermenting for some time. Suppliers have already struggled with the rapid recovery after the pandemic and are still unable to cope with increased demand.
Moreover, that gap will not be closed quickly. Green energy is in demand, but there is not enough yet. Money that is now being invested in oil and gas is therefore “caught between two visions of the future,” the International Energy Agency (IEA) stated before the summer. “Too much for a path to limit global warming to one and a half degrees, but too little to meet demand as long as governments […] fail to fulfill their climate promises.”
The result: an uneasy intermediate phase in which conflicting choices present themselves. Are you frying the earth by turning to more fossil fuels or are you leaving your population out in the cold? Better than the first, it turns out.
So the French government is forced to invest more in fossil fuels, because there is not enough cooling water to run the nuclear power plants due to the drought (fuelled by climate change). And so governments subsidize polluting energy so that their citizens don’t go under.
Record Profits and Assets
How long? The corona crisis has already stretched the concept of ‘temporary’ among policymakers, with new compensation for ailing employers, employees and self-employed people. Finance Minister Sigrid Kaag (D66) is done with that now that the economy is being disrupted again, she said this summer. “Wanting or being able to compensate continuously is simply not possible,” she said.
And just like corona, the energy crisis has not turned out to be a great equalizer, but exposes deeper differences. Take the lower VAT and excise duties. High earners appeared to benefit much more from this than low incomes: they consume more energy.
The fact that we are collectively getting poorer, as has been said in recent months, is not self-evident either. Companies like Shell, on the other hand, are making record profits and the Central Planning Bureau concluded to its own surprise that many companies have more room than expected for wage increases, without being forced to raise prices. “The belt does not have to be tightened so tightly and there is room for redistribution”, concluded CPB economist Marcel Timmer.
This explains why a large part of the House of Representatives, including the coalition parties, sees a lot in a solidarity levy or windfall tax. The best-known example for such a windfall tax is now the United Kingdom, which recently introduced it and hopes to collect 6 billion euros in additional tax revenues from oil giants such as Shell and BP.
The question is whether a comparable tax on this side of the Channel will yield much: the largest oil and gas giant in the Netherlands is NAM, which has already spent a lot of money on earthquake compensation. But a much broader tax on mega-profits could yield much more, found out an analysis of the Institute for Public Economics, a think tank made up of ex-officials of finance.
And at the last minute before the summer recess, a large wealth survey was conducted under the leadership of top civil servant Laura van Geest, which showed that the government strongly favors large wealth. That report made a similar plea: if wealth is taxed more heavily, the tax on labor can be lowered. That would help many Dutch people more than a lower VAT.
Also read:From 2,000 to 5,000 euros for an energy contract. Everyone is going to feel it
A version of this article also appeared in the newspaper of August 13, 2022