The Dutch government is helping its citizens on an unprecedented scale by promising a maximum energy price, effective January 1, and by transferring 380 euros to every household before the end of the year. The total size of the aid package is currently estimated at EUR 23 billion, but could be much higher, especially if it proves necessary to provide the aid for more than a year. Experience shows that it is not easy to withdraw such support.
For the first time in post-war history, the Minister of Finance at the General Financial Review could not say exactly how she was going to finance such expenditure. That is understandable. In the first place because it is completely uncertain how high the final bill will be. The estimate of 23 billion euros is based on the gas price of September 29. In the event of a further fall in the gas price, the damage could ultimately be not so bad, but the reverse also applies.
The cabinet hopes to partly recoup the extra expenditure by taxing high earners in the energy market more heavily, but the exact return on this is also still unclear. Because the Netherlands also extracts and continues to extract gas – even if the quantities are much lower than in the past – it earns back some of the higher costs by selling gas.
It is not the first time that the Dutch cabinet has embarked on such an uncertain financial adventure. Also during the credit crisis in 2008, money was thrown away, which has largely been recouped over time. During the corona pandemic, the money locks were opened wide again. Because the economy recovered quickly after corona, the consequences for the national debt were limited.
The question is whether it will end well this time. An important difference with the corona support is that interest rates have risen sharply in the meantime: from 0 percent on ten-year loans at the beginning of this year to 2.3 percent now. Debt will therefore weigh more heavily on the national budget. Director Pieter Hasekamp of the Central Planning Bureau warned this week about a new debt crisis. He referred to Britain, where the pound plunged and long-term interest rates skyrocketed as Prime Minister Liz Truss announced her reckless financial policies.
Britain also showed how quickly turmoil in the currency and capital markets can be quelled. After the Bank of England came to the rescue by buying up British bonds, the pound quickly returned to pre-Truss levels. If the euro is in danger, the European Central Bank will probably do the same.
The greatest danger is therefore not a debt crisis, but inflation, a continuous rise in prices that can no longer be curbed and disrupts the economy and society. Inflation is now largely driven by international developments – the war in Ukraine and the aftermath of the pandemic – but there is a danger that it will be further fueled by rapidly rising government spending.
The corona support already had an inflationary effect. Because all companies were supported, the number of bankruptcies decreased, causing large staff shortages. Western consumers also saw their savings account grow, because they kept their income, but could spend much less money. Lots of money in circulation, coupled with a reduction in the supply of goods and services, drives prices up.
The energy support package will give inflation a new push. Before the end of the year, the cabinet (eight million households times 380 euros) will scatter 3 billion euros across the country. And the same amount will be added every two months next year.
This may have been inevitable to prevent families from being unable to pay their energy bills, but at the same time it saddles the cabinet with a great deal of responsibility. It will have to refrain from further inflationary measures (extra spending, tax cuts) and preferably implement deflationary measures (spend less, increase taxes).
The position of the newspaper is expressed in the Volkskrant Commentaar. It is created after a discussion between the commentators and the editor-in-chief.