You can call it a miracle of agility, or hasty hasty work: a Budget Memorandum that has already become obsolete on Budget Day.
At the end of August, the cabinet already presented an unprecedentedly large package to support purchasing power. With the introduction of a price ceiling for the energy bill, on Budget Day itself, the list of expenses for next year swells even further. For example, the budget for 2023 will expand by almost 30 billion euros in a few weeks.
Money enough, uncertainty trumps. That is the curious situation in which Rutte IV finds herself. This was the government team that had to draw a line under the uncertain corona years, with big plans and a look ahead. That mission was overtaken by the Russian invasion of Ukraine within two months, and actually before the cabinet had even started. At the end of 2021, under Rutte III, energy prices also rose, when the first temporary tax cut was announced.
Since then, the uncertainty has only increased, as has the money to support purchasing power. That money is there. Well, at least. The Dutch economy is growing this year and, according to the latest forecasts from the Central Planning Bureau (CPB), will continue to grow next year, although the growth figures will then level off. Companies still farm well, especially if they export a lot and do not use too much energy. The state treasury also benefits from this.
That is not the only windfall for the budget. As a gas producer, the Netherlands also rides on the high gas price worldwide: as a result, billions are added to the revenue side of the government balance sheet. And since the economy is growing faster than the national debt, that debt is weighing less and less on the economy. Despite all those extra expenses.
Permanently in crisis mode
This allows the government to continue to spend, and it is doing so. In the CPB charts, the measures taken in recent weeks have turned an unprecedented purchasing power blow in post-war history into one that looks manageable, although no one knows whether that will remain the case.
The paradoxical situation is somewhat like the situation during corona. At that time, the Dutch economy held up reasonably well despite the far-reaching consequences of the pandemic. The cabinet offered emergency support, and central banks made this generous attitude possible with low interest rates. Consumer confidence did not fall, businesses continued to operate.
The crisis situation at that time seems to have become permanent. The government is still forced to set up emergency package after emergency package on top of the existing budget. But the conviction at the time, that the government has ‘deep pockets’ and that those pockets can be emptied to help citizens out, has been exchanged for doubt. Is it necessary? And is it possible?
We’ve been seeing the abyss approaching for months, but we still don’t know how deep it will get
This crisis is much more difficult to read. We’ve been seeing the abyss approaching for months, but we still don’t know how deep it will get. Now it is not so bad with the number of sky-high accounts, ABN Amro showed this week based on the data of its own customers. But due to the approaching winter and rising prices, that will soon be a multiple, the energy companies said right away.
Suddenly the challenge of that previous crisis seems relatively simple. Due to the lockdowns, the demand fell away, the cabinet absorbed it by handing out money. Easy. The screeching inflation and exploding energy prices are not that easy to explain. Because there are more problems than the war in Ukraine. Production and logistics worldwide have not recovered from the pandemic quickly enough to keep up with the rebounded demand for gas, electricity and goods. How do you build a support package that does not increase demand? Wages are lagging behind, the unions complain, but the government does not see that as its only problem. Hello, employers?
This time, the government also has to tackle this tangle of problems without a whizzing tandem with the central banks. While governments are once again waving billions to keep the lives of citizens and possibly companies affordable, the banks are now raising low interest rates. This should encourage people and companies to spend less in order to cool the economy and keep inflation under control.
For this reason, De Nederlandsche Bank and other authorities are suspicious of the purchasing power packages. If they are not careful, the cabinet and DNB will get in each other’s way.
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Where is the old normal?
Sigrid Kaag (D66) would have preferred to return to the old normal at her Ministry of Finance. But even before the Spring Memorandum (and the municipal elections) there was an extra purchasing power package.
The price ceiling was embraced with the same reluctance. It wouldn’t be possible until the energy companies made it clear that it was possible. The European Union would be against it, while other countries were already working with a kind of ceiling. And then, in the nick of time, it was possible.
The CPB and the Council of State show their annoyance at the speed with which the measures were cobbled together in their advice on the Budget Memorandum. Kaag will not lose sleep over that. “Exceptional times call for exceptional measures,” she said on Tuesday.
What will be more worrying is the future. Because when will the non-exceptional times come? The money will be less easy for the taking, and this crisis has no end date yet.