COUNCIL OPINION of 1 December 1998 on the stability programme of the Netherlands 1999-2002 (1999/C 3/02)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(1) and (2) thereof,

Having regard to the recommendation of the Commission,

After consulting the Monetary Committee,

HAS DELIVERED THIS OPINION:

On 1 December 1998, the Council examined the stability programme of the Netherlands, which covers the period 1999-2002. The Council notes that the programme builds on the significant progress towards fiscal consolidation achieved in the four preceding years and aims at reducing further the general government deficit and the debt GDP ratio.

The stability programme presents three macroeconomic scenarios for the period 1999-2002. For reasons of prudence the programme takes as a basis for the projections of the general government aggregates a cautious macroeconomic scenario forecasting GDP growth rates of 2,25 % per year. Such a scenario assumes a significant slowdown in economic activity from its current levels due, mainly, to a fall in external demand. It is under this scenario that the government deficit is projected to decline to around 1 % of GDP in 2002. This will be the result of an extension of the double-handed approach, consisting of reducing the government deficit and the tax burden followed during the period 1994-1998, covered by the second Dutch convergence programme. Moreover, the Council considers that the stability programme is consistent with the Broad Economic Policy Guidelines.

The Council acknowledges that the Dutch authorities adopted a cautious scenario for their budget policy and therefore for the stability programme in order to be on a sound position. The middle scenario of the stability programme which is based on an annual GDP growth rate of 2,75 %, and which reflects past trends, brings the projected government deficit close to balance. Finally the stability programme presents a more favourable scenario based on a 3,25 % annual growth rate under which the government financial balance turns slightly positive.

The Council commends the presentation of alternative projections for government financial balances based on different assumptions of economic growth and the prudence shown by the Dutch authorities in opting for a cautious scenario. It considers, however, that the fiscal consolidation effort in the programme appears to be less ambitious when compared with the progress made in this area until 1997 and regrets that in 1998 the government deficit widened despite high economic growth.

The Council notes that the projected pattern of fiscal adjustment is related to the option of a reduction of the tax burden as well as the increased expenditure aimed at the structural improvement of the economy. Although this option is understandable it leads, under the cautious scenario, to a modest annual reduction of the deficit amounting to 0,1 % of GDP which, however, represents a more pronounced reduction of the structural deficit. Even though the underlying budgetary position implicit in the projected deficit of 1 % of GDP in 2002, under the cautious scenario, provides some safety margin to prevent the deficit from breaching the 3 % of GDP threshold, the Council encourages the Dutch authorities to achieve better budgetary results since this would further reinforce the safety margin.

The Council is confident that the Dutch authorities will closely monitor developments in the fiscal situation and will take corrective measures if necessary, namely if growth will be lower than 2,25 % per year. The Council warmly welcomes the norm established in the programme to limit growth of government expenditure. It takes note of the intention of the Dutch authorities to allocate the benefits of growth higher than the cautious assumption between further reduction of the deficit and tax cuts; the Council invites the Dutch authorities to do it in a way that contributes to strengthen the budgetary position of the Netherlands.

The Council notes that the positive results of the previous programme had much to do with the implemented structural reforms in particular those geared to improving the functioning of the labour markets. In this respect, the Council welcomes the continued attention for economic reform in the programme, such as the plans for tax reform and the increased emphasis on education and infrastructure within the ceilings for government expenditure.

(1) OJ L 209, 2.8.1997, p. 1.