The government’s ambitious plans can also be paid for without burdening future generations with debt

Solar panels are installed on the roof of a house. Such a thing could well be financed with loans from a public investment bank.Image Jeffrey Groeneweg / ANP

Recent events in the world, such as the Ukraine war, and the major social challenges for the cabinet, such as the energy transition, housing construction and the nitrogen problem, require a greater role for the government. The Rutte IV cabinet has therefore presented ambitious plans. These plans will significantly increase the national debt in the coming years, towards 60 percent of GDP, leaving a smaller buffer to deal with future economic crises.

This concerns, among other things, 35 billion euros for sustainability via the Climate Fund, 20 billion euros in innovation via the National Growth Fund, and billions extra for housing. At the same time, the government must absorb more than 20 billion euros in financial setbacks, including the purchasing power repair caused by the current energy crisis, a sharp increase in defense spending to 2 percent of GDP, and the compensation of wealthy savers.

About this author

Joris Eken studies economics at the University of Örebro, Sweden.

However, there is an alternative financing method to achieve the objectives for these government plans, without this leading to a higher debt burden for future generations. That is the establishment of a public development bank that finances investments in housing, innovation, sustainability and public works.

to merge

Existing government resources that are currently not being used by the cabinet can be used for this purpose by merging the Bank of Dutch Municipalities (BNG) with development banks InvestNL and the Nederlandse Financierings-Maatschappij for Developing Countries (FMO). Development banks for policy financing are already being used in other member states of the OECD (Organisation for Economic Cooperation and Development), such as in Germany through the Kreditanstalt für Wiederaufbau (KfW), in South Korea through the Korea Development Bank, and in France through the Caisse des depots et consignations.

The establishment of a public investment bank is also encouraged by the European Commission and is in line with the recommendation of the Scientific Council for Government Policy (WRR) in 2019 to create more diversity in the financial sector by establishing a public ‘utility bank’. By merging BNG, FMO and InvestNL, a public investment bank can be created that has enough financial strength to make large-scale investments in the field of sustainability and technological innovation.

The idea of ​​establishing a public investment bank is not new† In 2017, the election programs of various political parties stated that BNG and the Nederlandse Waterschapsbank (NWB) should merge into a public investment bank, on the advice of former banker and IMF director Jeroen Kremers. Both Jeroen Dijsselbloem, then Minister of Finance, and Minister Henk Kamp of Economic Affairs reacted enthusiastically to the proposal.

Fear of municipalities

However, there was a lot of criticism from the municipalities, who feared that the creation of a ‘monopolistic’ national investment bank would lead to higher interest costs and that housing associations would be ‘discarded’ by the new state bank. However, with the merger between Bank Nederlandse Gemeenten, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO) and InvestNL, competition between public banks in the Netherlands can continue.

As the major shareholder of this financing institution, central government can establish a mandate in which the bank allocates at least 50 percent of the annual lending to sectors that are relevant to achieving the policy objectives. 2019, provided the BNG for example, 14 billion euros in new loans, financed by issuing bonds on the capital market.

Through a merger, 7 billion to 9 billion euros can be invested annually in, among other things, sustainability, innovation and public works. In order to continue to support the semi-public sector, the condition can be set that the remaining 50 percent of all new loans must be provided to housing corporations and municipalities, whose financing needs can still be met by the Nederlandse Waterschapsbank (NWB). This prevents the creation of a monopoly in financing the semi-public sector.

Less tax money

By merging the BNG, InvestNL and the FMO under a public financing institution, the functions of the National Growth Fund and the Climate Fund can eventually be transferred to this investment bank, so that less taxpayers’ money needs to be made available for these funds, which can even be fully funded. be abolished.

In short, public budget savings can be achieved through the creation of a public development bank, which will be tasked with financing investments in the construction of affordable and sustainable housing, renewable energy, technological innovation, infrastructure and public works.

I hope this recommendation can spark interest among politicians in alternative financing options for investment, and especially in establishing a public investment bank. The time is ripe for it, now that free-market thinking is becoming less popular in the world and a greater role for government is once again being looked at for solutions.

ttn-23