Business is in the corner where the blows fall. Corporate taxes are going up, rents are going up, just like – because of staff shortages – wages. And then the energy costs are also sky-high. That is why VVD minister Micky Adriaansens of Economic Affairs wants to help the energy-intensive part of small and medium-sized enterprises (SMEs), she announced last week. It was no longer possible for Prinsjesdag, but in November there should be a package for bakers, butchers and horticulturists, among others.
But the same business sector achieved record profits in the first quarter, the Central Bureau of Statistics (CBS) reported. And the Central Planning Bureau (CPB) established that there is enough room for wage increases. Is it wise, after all the corona support, to keep the business community afloat with financial support now that the going is bad?
“Yes, there were record profits in the first quarter. But the situation is now really different because of the war in Ukraine’, says economist Rens van Tilburg. ‘What matters is that we have supported companies massively for two years because of corona. Everyone was there for that, including me, but looking back we have to admit that it was a bit too much. Corporate reserves have grown at an unprecedented rate, by 100 billion euros, to their all-time high, and there were hardly any bankruptcies. The economy has come to a standstill during corona, while things really have to change, partly because of the climate.’
Business dynamics under pressure
‘What is and is not supported is a political choice. That’s not what we’re talking about’, says ABN Amro economist Jan-Paul van de Kerke. ‘But from an economic perspective, with a somewhat longer view, we see that business dynamics are under pressure. So I would advise against policies that prevent the return of that dynamic. That’s a dangerous thing to say, because it’s about bankruptcies of individual entrepreneurs, but macroeconomically it would be good. Because because of that low dynamic, we have a labor market that is too tight, for example.’
There may be something to be said for support for bakers, butchers and gardeners. After all, food is a basic necessity of life. But Adriaansens also mentioned garden centers and saunas. ‘If, due to the high gas prices, such a sauna is only open two days a week instead of seven, that’s exactly what you want,’ says Van Tilburg. ‘There is a gas crisis, consumption has to be reduced. Let the government impose that cafes are not allowed to use patio heating and that shops with air conditioning must keep their doors closed. The crux is: there is a shortage of gas. Demand has to come down.’
Economists like to look at pricing. ‘We are now being thrown into a hefty price tag as a result of the high energy prices, so it is not wise to immediately compensate for it,’ says Van Tilburg, who is director of the Sustainable Finance Lab, an academic think tank that is committed to a sustainable economy. more sustainable use of society’s financial resources. ‘Look at the gardeners. Of course they are here because of the cheap gas. That’s not going to come back. So the question is, how much more money do you have to put into that, in an industry that’s going to get into trouble sooner or later. You have to ask yourself whether that is not a waste of money. Moreover, one of the oldest environmental tips is to eat only seasonal vegetables. If you continue to support the gardeners, you will take away that effect. That consumers no longer buy some products because they are too expensive due to the high gas prices is exactly what you want.’
There must be incentives
‘That cheap gas is indeed not coming back. So if you now subsidize the losses of horticulturists, it will not help in making that adjustment’, agrees Van de Kerke of ABN Amro. According to the bank, energy prices will remain high until the end of next year, and there may be more frequent price shocks for raw materials. ‘Then it is dangerous to immediately compensate for this,’ says economist Van de Kerke. ‘If you decide to support now, you have to stick with it for a long time. And you create a situation in which companies experience less of the incentive that emanates from higher energy prices. De Nederlandsche Bank has also said this about the corona support: it is good that it happened, but it should not become automatic. There must be incentives to adapt.’
However, according to the ABN Amro economist, it is important that the government looks at the effect on the rest of the economy in the support operation. ‘If Albert Heijn goes bankrupt, an entire chain of suppliers will go bankrupt. The government should therefore look at what the vital sectors are.’ Van Tilburg: ‘Some bankruptcies are fine and much needed. There is not a future for all companies and the released workers are desperately needed elsewhere. But what you don’t want is for everything and everyone to fall over the coming winter. So you have to find a balance, with good dimensions, to prevent production structures from being unnecessarily damaged.’
At least as important as ‘not too broad and not too luxurious’ support, says the Sustainable Finance Lab director, is the long term. ‘Give entrepreneurs certainty about energy prices for the coming years, so that they know that it pays to invest in the energy transition. Put a floor in the prices by making the energy tax variable, ie higher if the market price falls below a certain minimum. Otherwise everyone will start looking at each other in the energy transition and things will not get done.’